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The Ultimate Ichimoku Cloud Trading Guide

The Ultimate Ichimoku Cloud Trading Guide – Part 1

  • August 7, 2019

The Strange Japanese indicator that is taking the market by storm

If you’re on this page then you are trying to figure out what the Ichimoku kinko hyo indicator is all about.

Ichimoku Kinko Hyo - Ichimoku Cloud

On a personal level, it has had a massive impact in the way I trade.

It gave me the insights I needed to finally break into profitable trading, and continues to do so.

So, what makes Ichimoku so unique?

The combination of the indicators inside Ichimoku, and how they work together, paint a picture of what’s going on in the market that you can see from just a glance.

In fact, Ichimoku Kinko Hyo is roughly translated to “instant look at the balance chart“, or “one glance equilibrium chart“.

If this long name is a bit much for you to pronounce, it is commonly called the Ichimoku cloud indicator.

It allows you to look at a chart and within seconds be able to see the trend, momentum, support and resistance, and strength.

It’s for this reason that I am able to scan through every pair my broker offers and find all my setups within 10 minutes total screen time.

If you like technical analysis based trading, then this indicator really packs a punch and is the whole package!

You can use this indicator whether you’re trading currencies, stocks, futures, commodities, and even crypto, but I mostly use it to trade the forex market.

In this post I’m going to break down the different components of the indicator for you.

In Part 2 of this guide, I will dive into the trading signals portion of this indicator, and explain where it tells you to buy or sell.

More than anything, I also want to explain what differentiates it from other indicators and makes it unique.

If you prefer a video format, you can check out my videos on youtube on ichimoku below:

What are the components of Ichimoku?

1.Tenkan-sen

(highest high + lowest low)/2 (over the last 9 periods)

This line is seen as a short term support/resistance line and is sometimes called the conversion line. When it crosses kijun sen, it is seen as a trigger of a change in the trend. It can also used to look for price interaction and act as a minor support or resistance level.

2.Kijun-sen

(highest high + lowest low)/2 (over the last 26 periods)

This is a often called the base line. It acts as a support/resistance, and can be used as a place to put stop losses.

It is seen as a medium or longer term trend since it covers 26 periods. T

raditional Ichimoku trading will continue to look for buys if price is above kijun sen, and sell if price is below kijun sen.

When it crosses with tenken sen, it is seen as a major shift in trends as well.

3.Chikou span

Closing price projected backward by 26 periods on the chart.

It is considered to be lagging and is used as a trigger for orders, as well as a sign of strength.

If the Chikou Span crosses up and through price it is seen as a buy signal and is showing that price is currently stronger to the upside than in the past.

If Chikou Span crosses down and through price it is seen as a sell signal and is showing that price is currently stronger to the downside than in the past.

4.Senkou span A

(Tenkan-sen + kijun-sen)/2 (projected 26 periods ahead)

This is often called leading span 1, this line makes one edge of the kumo (cloud)

This is seen as a major level of support or resistance.

While most indicators are only lagging, this projection into the future allows a future cast of price movement.

5.Senkou span B

(highest high + lowest low)/2 (over the last 52 time periods and projected 26 periods ahead)

This is often called leading span 2, and forms the other edge of the Kumo.

It is also seen as a major level of support or resistance.

Again, this projection into the future gives us a future cast of probable price movement.

6.Kumo

The kumo is the area created between Senkou span A and B.

It is dynamic and changes based on the calculations from tenkan sen and kijun sen.

This is what comes to mind when most people think about ichimoku, and is a major piece of the strategy that is used with this indicator.

The cloud edges act as support and resistance, with a stronger levels being formed by a flat kumo.

The thinner the kumo, the quicker price is moving and more easily those levels can be broken.

The thicker the kumo, the stronger those levels are and the harder it will be to be broken.

When Senkou A is above Senkou B, you will often see bright colors used as these clouds are seen as “bright or sunny” indicating that things are looking bullish.

When Senkou B is above Senkou A, you will often see dark colors used as these clouds are seen as “dark or gloomy” indicating that things are looking bearish.

The transition from a bullish to bearish kumo (or vice versa) is called a kumo twist.

This is one of the confirmations we use for our trend bias.

You can also look to past clouds, called kumo shadows, for guidance on support and resistance levels.

Reading about the ichimoku components is one thing, but seeing them is another.

Here is a chart so you can see exactly what we’ve been talking about

Ichimoku Kinko Hyo-Ichimoku Cloud
Ichimoku Cloud Chart

So, now that you know about the components, how they’re calculated, and what they do, you’re going to want to learn how to use them to trade.

In Part 2 of this series I will go into more detail on the traditional entries, exits, signals, and how to capture larger price movements across trends.

You’ll be shocked at the amount of pips that can be captured over a relatively short period of time!

I use these exact strategies week in and week out and want to help give back to the trading community

I send out 3 hand picked Ichimoku trade setups each and every weekend for free!

If you want to get them delivered right to your inbox every weekend, you can sign up here!

Make sure to check back soon for the conclusion of The Ultimate Ichimoku Cloud Trading Guide!

If you found this post useful, please share it with a friend or on your social media!

About the Author The808Trader

Jason (better known as The808Trader) started his trading career in college in 2010.  After dabbling in stocks he found his way to Forex Markets. The first 4 years were up and down and it wasn't until he discovered the Ichimoku trading strategy combined with countless hours of chart time that it really clicked. Creating his own unique twist on the system and breaking it down in a simplified, easy to understand way using his engineering background, he has accelerated the path to success for traders around the globe. 

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