Make Money Using Ichimoku Kinko Hyo

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Ichimoku Kinko Hyo + Volume

Today I am going to explain you what is Ichimoku Kinko Hyo and how to trade it. Moreover, I will show you how I trade a combination of Ichimoku Kinko Hyo with volume spread analysis as I said in my previous articles. Ichimoku is an indicator and there is in every platform. So, just look for it in the indicator’s list and drop it to your chart. First of all, take a look in the first screen shot about how this indicator look like.

This chart is from EURUSD currency pair and I use only the Ichimoku and the Better Volume Indicator. I am working in a 5min chart. The first thing you will notice it’s obviously the cloud. This is Kumo. The upper line of Kumo is senkou span A and the other one the senkou span B. The blue line which look like a moving average is the Kijun and the red one the tankan. Last, the green one is the chinkou. So, the whole thing is the “Ichimoku Kinko Hyo”. Maybe you are confused right now but I am going to explain how this complicated thing is a very strong tool for the technical analysis.

There are many theories and trading systems around this indicator and I will tell you the basics and how I use this with volume and price action. First of all, you should know that Ichimoku works better in trending markets and If you are able to catch a trend from the beginning in financial products like Spread Bets, Spot Forex you will earn good money. You can also use it in Binary Options but I recommend longer expiries.

If the price is above the Kumo there is a bullish activity in the market and an up-trend. If the price is below the Kumo there is a bearish activity in the market and a down- trend. Some traders are waiting for a Kumo’s break. Maybe, it will be the beginning of a new trend. Take a look.

In the first blue box the price broke the Kumo and we have an up- trend. In the second blue box the price broke the Kumo (senkou B) and we have a mini- down trend.

Another theory for the Ichimoku is about the Tenkan- Kijun Crossovers. When the tankan(the red) is above the Kijun(the blue) we have a bullish market. On the other hand when Kijun is above Tenkan there is a bearish market. So, with a crossover of these two we can take long or short signals.

In this screen shot you can see a crossover and after it the Kijun is above so we have a short signal.

Some traders use Ichimoku to identify supports and resistances. Many of them use the chinkou as a S&R. Notice the above chart, some minutes before the blue box. The price is moving down and the chinkou(the green one) acts as a support. Other traders, use the Kumo lines (senkou A and B) as S&R especially when the price fails to break the kumo the first time and it creates a S&R inside the Kumo.

I’m around in the forum so any questions hit me up there!

Ichimoku Trading Guide – How To Use The Ichimoku Indicator

Ichimoku Trading Guide – How To Use The Ichimoku Indicator

The Ichimoku indicator is an all-in-one indicator that provides information about support/ resistance, trend direction and momentum all at the same time. The Ichimoku indicator is a potent trading tool, but many traders feel overwhelmed when looking at all the lines and information that the indicator gives them and then often misinterpret the Ichimoku signals. In this article, we will dissect the tool and show you step by step how to use the Ichimoku indicator to make trading decisions.

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First step: taking the Ichimoku indicator apart

The Ichimoku indicator is made up of 2 different components:

1) The Conversion and Base lines: Those look like moving averages on your charts, but they are not as we will see

2) The Ichimoku Cloud: The Cloud is the most popular aspect of the indicator because it stands out the most.

Please note that I am focusing on the momentum and trend-following aspects of the Ichimoku indicator for this article. The lagging span of the Ichimoku is left out by choice since it does not add much value.

We will now take a look at each component individually and then put it all together to help you find better trade signals.

Conversion and Base Lines

As I said earlier, that the Conversion and Base lines look like moving averages on your charts, but they do something different. The Conversion and the Base lines show the middle of the 9 and the 26 period high and low. This means that they look back 9 and 26 periods (candles), take the highest and the lowest price levels during that period and then plot the line in the middle of that range.

In the screenshot below, the green and the red line are the Ichimoku Base and Conversion lines. For comparison, I also plotted a 9 period moving average in white on the chart; the moving average is very similar to the Conversion line, but does not match it 100%.

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Tenkan Sen / Conversion Line: The middle of the 9-period high and low

Kijun Sen / Base Line: The middle of the 26-period high and low

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Conversion and Base lines signals and meaning

The Conversion and Base lines have two purposes: first, they act as support and resistance during trends, just like moving averages. Secondly, they provide momentum information. When price is trading above the two lines and when the Conversion line is above the Base line, it signals bullish momentum. This is also very similar to moving averages: when the shorter moving average crosses above the longer moving average, it means that momentum is up and rising.

  • Base and Conversion lines act as support and resistance during trends
  • Only take buy trades when price is above the two lines and sell trades when price is below the two lines
  • A cross of the two lines confirms momentum
    • When the shorter line moves above the longer-term line, it means rising bullish momentum (and vice versa)
    • When price moves above the two lines, it confirms the momentum

The Ichimoku Indicator: The Cloud

The Ichimoku Cloud is made up of a lower and an upper boundary and space in between the two lines is then often shaded either green or red. Let’s explore what this means.

The first and faster-moving boundary of the Cloud is the average between the Conversion and the Base lines. The second, slower-moving boundary is the middle between the 52 period high and low. An important characteristic of the Cloud is that it is projected 26 periods into the future.

Again, in the screenshot below we plotted two regular moving averages next to the Cloud and used an offset of 26 (shift the moving averages into the future). You can see that the moving averages are almost identical to the Ichimoku Cloud.

Seknou A – faster-moving boundary: The middle between Conversion and Base Line

Senkou B – slower moving boundary: The middle between the 52-period high and low

Important: The Cloud is shifted 26 periods into the future

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Ichimoku Indicator Cloud signals and meaning

The general idea behind the Cloud is very similar to the Conversion and Base lines since the two boundaries are based on the same premises. First, the Cloud acts as support and resistance and it also provides trend direction and momentum information. But since the Cloud uses a 52 period component (as opposed to 9 and 26), it moves slower than the Conversion and Base lines.

Basically, the Cloud confirms an uptrend when price is above the Cloud and a downtrend when price is below the Cloud. The space within the Cloud is a noise zone and trading here should be avoided. A rally is reinforced when the Cloud is green and a strong downtrend is confirmed by a red Cloud.

The Cloud, thus, is a way to trade with the longer-term trend and we can sum up our findings as follow:

  • Trend-following trading based on which side of the Cloud price is
  • The Cloud acts as support and resistance during trends
  • It’s a noise zone when price is in the Cloud

The Signals – how to use the Ichimoku indicator to find trades

Now that we have a solid understanding of what the individual components do and what their signals and meanings are, we can take a look at how to use the Ichimoku indicator to analyze price charts and produce trading signals.

The Cloud: long term trend, resistance and color

With the help of the Ichimoku Cloud, traders can easily filter between longer-term up and downtrends. When price is below the Cloud, it reinforces the downtrend and vice versa. During strong trends, the Cloud also acts as support and resistance boundaries and you can see from the screenshot below how price kept rejecting the Cloud during the trend waves.

Thus, the Cloud is ideal when it comes to filtering between bullish and bearish market phases. However, as most momentum indicators, the Ichimoku Cloud loses its validity during range markets.

The faster Conversion and Baselines signals

The Conversion and Base lines are the fastest moving component of the Ichimoku indicator and they provide early momentum signals. In the screenshot below we marked different points with the numbers 1 to 4 and we will now go through them to understand how to use the Conversion and Base lines:

1) The Conversion line crosses above the Base line which is a bullish signal. At that time, price was also trading above both lines which confirms the bullishness. Price dipped back into the Cloud for a moment, but found support. This could have been seen as an entry.

2) Price started to violate the Base line (yellow) which is a warning signal of a trend shift. The Conversion and Base lines also crossed into a bearish setup, further confirming the momentum shift. Finally, price entered the Cloud validating the change.

3) Price strongly crossed below the Conversion and Base lines and the Conversion line also crossed the Base line; both are bearish signals. At the same time, price was trading below the Cloud. All those signals confirm a strong downtrend and could have been used as a sell entry.

4) Price started to violate the slower Base line which is an early warning signal. Then, the Conversion and Base lines kept crossing each other, which further confirmed that momentum was shifting. Eventually, momentum died off and price consolidated sideways.

RSI and creating confluence

We are all about generating confluence which means combining different trading tools and concepts to create a more robust trading method. Our preferred indicator is the RSI and it works together with the Ichimoku perfectly.

When using the Ichimoku indicator to ride trends, it’s important to understand when the trend is over and when a potential reversal signals a trade exit. The screenshot below shows that by adding the RSI and looking for RSI divergences, it is possible to identify high probability reversals. If, after a RSI divergence, price crosses the Conversion/Base lines, a reversal is very likely and it can even foreshadow a longer trend reversal into the opposite direction.

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Stop placement and exiting trades

Just as moving averages, the Ichimoku indicator can also be used for your stop placement and trade exits. When exiting a trend-following trade based on the Ichimoku signals, there are a few things you should know:

  • When, during a downtrend, price crosses above the Conversion and Base lines, it can signal a temporary shift in momentum…
  • …but as long as the Cloud holds as resistance, the trend has not yet been broken.
  • When price breaks above the Cloud, the downtrend is finally over.
  • Traders can use the Ichimoku for conservative and aggressive trade exits:

The conservative exit (1): A more conservative trader would exit his trades once the Conversion and Base lines cross into the opposite direction of the ongoing trend. Such a trader usually avoids a lot of the choppiness that exists before reversals happen. On the other hand, he might miss on future trend moves when price reverts back into the original direction; not all Conversion-Base line crosses lead to trend reversals.

The aggressive exit (2): A trader who wants to ride trends for a longer time exits his trade only once price breaks the Cloud into the opposite direction. The advantage is that he can sometimes hold trend trades much longer and is not as vulnerable to temporary retracements. On the other hand, he might exit some of his trades too late and could end up giving back a substantial amount of his profits because the Cloud-cross usually happens very late.

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Conclusion:В The Ichimoku indicator is aВ solid trading framework

Overall, the Ichimoku framework is a very solid, all-in-one indicator that provides a lot of information at once. As we have shown, there is no secret when it comes to using and interpreting the Ichimoku indicator and the individual components are very closely correlated to trading based off of moving averages. Nevertheless, the Ichimoku indicator definitely has its place and traders who decide to follow such a trading strategy can create a robust framework. We also highly encourage to combine the Ichimoku indicator with other tools such as basic support/resistance principles, price action and chart pattern reading and, potentially, other indicators.

To sum it up, here are the most important things you have to know when it comes to trading with the Ichimoku indicator:

  • Use the Cloud to identify the long term trend direction. Only trade in the direction of the Cloud.
  • The Cloud also acts as support and resistance during trends. But when price enters the Cloud, it signals a shift in momentum.
  • When the Conversion line crosses above the Base line, it can signal the shift towards a bullish trend
  • During a trend, the Conversion and Base lines act as support and resistance
  • Only trade in the direction of the Conversion and Base lines
  • A trader can either use the Conversion/Base lines for his exits (conservative), or exit when price breaches the Cloud (conservative)
  • During ranges, the Ichimoku indicator loses its validity

Best Ichimoku Strategy for Quick Profits

Best Ichimoku Strategy for Quick Profits

The best Ichimoku strategy is a technical indicator system used to assess the markets. This unique strategy provides trading signals of a different quality. Forex trading involves substantial risk of loss. Although, with Ichimoku cloud trading, those losses are contained and kept small.

The Ichimoku system is a Japanese charting method and a technical analysis method. Our team at Trading Strategy Guides mastered the method over a long period of time.

The Ichimoku indicator was published in 1969 by a reporter, Ichimoku Kinkou Hyo, in Japan. This candlestick trading technique has stood the test of time.

The name Ichimoku tells a lot about the trading system, or at least it gives a description of the system.

Ichimoku = “One look, glance”.

Kinkou = “Balance, equilibrium”.

Hyo = “Chart, Graph”.

Ichimoku cloud trading attempts to identify a probable direction of price. It helps the trader determine the most suitable time to enter and exit the market by providing you with the trend direction. It gives you reliable support and resistance levels and the strength of these market signals.

Before we delve deeper into the Ichimoku Cloud strategy, let’s look at the indicators needed to successfully trade the strategy.

The most popular Forex trading platforms use the Ichimoku Cloud indicator. The Ichimoku indicator paints all the components needed to help visualize the price action better. The Ichimoku cloud is one of the most comprehensive technical indicators in modern use. Unsurprisingly, it has quickly become the “go-to” indicator for forex traders around the world.

In the Ichimoku cloud section, we are going to give you an in-depth overview of the Ichimoku components.

So, before moving forward, let’s define all the Ichimoku Cloud components. We will review how to correctly interpret the trade signals generated by this technical indicator.

Ichimoku Cloud Explained

The Ichimoku Hinko Hyo is a momentum indicator used to recognize the direction of the trend. It can also define accurate support and resistance levels. The Ichimoku Cloud indicator consists of five main components that provide you with reliable trade signals:

  1. Tenkan-Sen line, also called the Conversion Line, represents the midpoint of the last 9 candlesticks. It’s calculated with the following Ichimoku formula: [(9-period high + 9-period low)/2].
  2. Kijun-Sen line, also called the Base Line, represents the midpoint of the last 26 candlesticks. It’s calculated with the following formula: [(26-period high + 26-period low)/2].
  3. Chiou Span, also called the Lagging Span, lags behind the price (as the name suggests). The Lagging Span is plotted 26 periods back.
  4. Senkou Span A, also called the Leading Span A, represents one of the two Cloud boundaries and it’s the midpoint between the Conversion Line and the Base Line: [(Conversion Line + Base Line)/2]. This value is plotted 26 periods into the future and it’s the faster Cloud boundary.
  5. Senkou Span B, or the Leading Span B, represents the second Cloud boundaries and it’s the midpoint of the last 52 price bars: [(52-period high + 52-period low)/2]. This value is plotted 52 periods into the future and it’s the slower Cloud boundary.
  6. Chikou Span, represents the closing price and is plotted 26 days back.

While the Ichimoku Cloud indicator involves multiple (five) different lines, reading the graph is actually very easy. Using the trend lines mentioned above, you will then need to determine whether Leading Span A or Leading Span B is currently higher.

Once Leading Span A and Leading Span B have been identified, the “cloud” component of this graph will be shaded in. When Leading Span B is above Leading Span A, this indicates to traders that price momentum is currently increasing. When this is the case, the graph will be shaded green.

On the other hand, when Leading Span A is below Leading Span B, the underlying asset is likely moving in a negative direction. When this happens, the cloud will be shaded red. Despite the graph’s complications, simply looking at the colors of the cloud can help you determine the direction of the market.

Here are some basic interpretations of the Ichimoku charts:

  • When the price is above the Cloud, we’re in a bullish trend.
  • When the price is below the Cloud, we’re in a bearish trend.
  • When the price is in the middle of the cloud the trend is consolidating or ranging.

Furthermore, the Ichimoku charting technique provides bullish and bearish signals of various strengths.

When the Tenkan crosses Kijun from below, it is considered a bullish signal. When the Taken crosses the Kijun from above, it is considered a bearish signal. The Kijun line is shown as the red line above.

The strength of the Ichimoku trading signals are assessed based on three factors:

  • How far away is the price movement relative to the Cloud?
  • How far away is the Chiou Span relative to the Cloud?
  • How far away is the Cross-over relative to the Cloud?

Because many of the lines on the Ichimoku Cloud chart are created using averages, the chart is often compared to a simple moving average chart. However, Ichimoku is more dynamic than a simple moving average chart as it’s designed to help detect changes in support and resistance.

The relationship between Leading Span A and Leading Span B will indicate whether there is a strong downtrend or uptrend. Pay attention to both the color (green for bullish, red for bearish) and the size of the cloud. When the “cloud” between these lines is small, then the trend will not be very strong.

The Ichimoku Cloud is useful for day traders and others who need to make quick decisions. The cloud is often paired with other technical indicators, such as the Relative Strength Index, in order for traders to get a complete picture of resistance and support. Many traders will also look out for crossovers in order to determine when trends have reversed.

Ichimoku cloud trading requires a lot of self-discipline. This is because you have to wait for the best trade signals. We’re going to use the default settings of the Ichimoku Cloud system.

Now, let’s move one step forward and learn how to make money by applying the Ichimoku trading rules.

Note* Moving forward, we’re not going to delete the Lagging Span moving average from our charts. This is because we don’t base our trade decision on it since it’s lagging the price.

The Best Ichimoku Strategy – Buy Rules

The Ichimoku Cloud system is designed to keep traders on the right side of the market. Our trading rules will help you follow the trend for as long as possible. At least until it’s clear that a reversal is occurring. The Ichimoku system suits swing trading best. This is because it maximizes profits while minimizing the risk involved in trading. Here is how to identify the right swing to boost your profit.

The Ichimoku Kinko Hyo best time frame is the one that fits you best. As we don’t have a preferred time frame.

This swing trading strategy will teach you how to ride the trend right from the beginning. You will also learn how to capture as many profits as possible.

Ichimoku Cloud Trading: Step by Step

Step #1 Wait for the Price to Break and close above the Ichimoku Cloud.

Ichimoku cloud trading requires the price to trade above the Cloud. This is because it’s a bullish signal and potentially the beginning of a new up-trend.

The cloud is built to highlight support and resistance levels. It highlights several layers deep because support and resistance is not a single line drawn in the sand. It is several layers deep.

So, when we break above or below the Ichimoku Cloud, it signals a deep shift in the market sentiment.

A high probability trade setup requires more layers of confluence before pulling the trigger.

This brings us to our next requirement for a high probability trade setup.

Step #2 Wait for the Crossover: The Conversion Line needs to break above the Base Line.

The price breakout above the Cloud needs is followed by the crossover of the Conversion Line above the Base Line. Once these two conditions are fulfilled, we can look to enter a trade.

The Ichimoku Cloud indicator is a very complex technical indicator. The indicator is even used as a moving average crossover strategy.

Now, we’re going to lay down a very simple entry technique for the Ichimoku Kinko Hyo trading system.

Step #3 Buy after the crossover at the opening of the next candle.

Ideally, any long trades using the Ichimoku strategy are taken when the price is trading above the Cloud. Our team at the TSG website has adopted a more conservative approach. We added an extra factor of confluence before pulling the trigger on a trade.

So, after the crossover, we buy at the opening of the next candle.

(Notice the strong buy signal in the graph below.)

The next important thing we need to establish is where to place our protective stop loss.

Step #4 Place protective stop loss below the breakout candle.

The ideal location to hide our protective stop loss is below the low of the breakout candle. This trading technique accomplishes two major things. Here is an example of a master candle setup.

First, it’s significantly lowering the risk of losing big money. Second, it helps us trade with the market order flow.

Since this is a swing trading strategy, we’re looking to capture as much as possible from this presumably new trend. We’ll be looking to trail our stop loss level below the Cloud or exit the position once a new crossover happens in the opposite direction.

The next logical thing we need to establish for the Ichimoku trading system is where to take profits.

Step #5 Take Profit when the Conversion Line crosses below the Base Line.

We only need one simple condition to be satisfied with our take profit strategy.

When the conversion line crosses below the baseline we want to take profits and exit our trade.

Alternatively, you can wait until the price breaks below the Cloud, but this means risking to lose some parts of your profits. In order to gain more, sometimes you have to be willing to lose some.

Note** the above was an example of a BUY trade using the advanced Ichimoku trading strategies. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.

(See the strong sell signal in the conversion line.)

Conclusion: Ichimoku Cloud Explained

The best Ichimoku strategy is slightly different than probably anything you’re used to when it comes down to technical analysis. If you’re having a very difficult time finding true support and resistance, please apply the Ichimoku cloud trading techniques highlighted in this course.

We hope that by now you’re convinced that the Ichimoku Cloud system is a good way of identifying the trends and profit from trading any market on any time frame. It can easily capture 80% of the trend if you follow the rules in the Ichimoku Cloud explained section.

Thank you for reading!

Please leave a comment below if you have any questions about Best Ichimoku Strategy!

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