Ichimoku is one of the important indicators used in Forex technical analysis. But do you clearly understand its advantages and limitations, as well as how to apply it in forex analysis and trading? Let’s explore with Forex Trading how to use Advanced Ichimoku clouds effectively.
The role and meaning of the Ichimoku indicator in forex
What is Ichimoku? it is a trend trading system, so there is a certain lag. When the market trend is unclear, Ichimoku may give inaccurate signals. Therefore, investors should combine Ichimoku with other analytical tools. So what is the role of the indicator? That is:
- Identify market trends: By using the components of the Ichimoku cloud, investors can identify market trends. If the price is above the Kijun-Sen line, Tenkan-Sen line, or below the Chikou Span line, it usually indicates an uptrend. When the price is below the Kijun-Sen line, Tenkan-Sen line, or above the Chikou Span line, it usually shows a downtrend. The thickness and color of the Kumo cloud, as well as the distance from the price line to the Kumo cloud, can be used to predict further price action.
- Identify support and resistance levels: The Kijun-Sen baseline, Tenkan-Sen signal line, Chikou-Span line, and Kumo cloud can help identify important support and resistance levels.
- Order opening and closing signals: Based on the crossover signal between the baseline and the signal line. Investors can predict and open Buy/Sell orders following the trend or when the price breaks the cloud. This is important information to close the order.
See more: Explore Ichimoku – indicator for professionals
What are the pros and cons of Ichimoku?
The Ichimoku indicator was developed in the late 1930s by Goichi Hosoda. After many years of researching and recording rice prices, he has collected information about certain regions on the chart.
Advantages of advanced Ichimoku
There are many benefits to using the Ichimoku clouds in analysis and trading:
- Ichimoku Cloud can be applied in many trading markets such as stocks, forex, futures contracts, options, indices, and precious metals such as gold and silver.
- Investors can use the Ichimoku cloud to generate ideas and set up trades in just minutes. From there it is easy to recognize the price direction, feeling, momentum, and strength of the trend
- The method can display multiple data at once and combine 3 indicators on one chart. It helps investors and analysts better understand price actions.
- Ichimoku charts focus on identifying price trends. For markets with clear trends, the Ichimoku cloud works best and helps investors recognize price direction. It is also capable of identifying false breakout levels. Due to its ability to identify trends within the trading timeframe.
Disadvantages of Ichimoku clouds
Although Ichimoku clouds are considered one of the most powerful and popular indicators. However, there are some disadvantages to note:
- Ichimoku clouds come in many different lines and colors, making reading and understanding difficult for beginners.
- The Ichimoku Rattan is designed for the trending market. Therefore, it may not be suitable for all other types of markets.
In short, these disadvantages are not completely worrisome when using Ichimoku. However, users need to understand and pay attention to use this tool effectively.
Basic Ichimoku cloud indicator analysis
The limit between Senkou Span A (blue) and Senkou Span B (red) in the chart is called the cloud (Kumo in Japanese and Cloud in English). Its color depends on the position of Senkou Span A relative to Senkou Span B. There are two methods to determine the general trend using clouds.
Based on the price line compared to the Ichimoku cloud
First, based on price position relative to the cloud:
- If the price is above the cloud >>> Uptrend
- If the price is below the cloud >>> Downtrend
- If the price is in the cloud >>> Trend is sideways
Based on the relationship between Span A and Span B
Second, based on the relationship between Span A (blue cloud line) and Span B (red cloud line):
- If Span A is above Span B >>> Blue Cloud >>> Uptrend
- If Span B is above Span A >>> Red Cloud >>> Downtrend
The cloud is moved forward 26 days. It therefore provides preliminary information about future support or resistance.
How to use advanced ichimoku for traders
The advanced ichimoku indicator is called “the cloud”. This indicator is built based on moving averages. It helps us see information about price trends, support and resistance levels, as well as signals to enter and exit orders.
Use advanced ichimoku when the Tenkan-Sen line crosses the Kijun-Sen line
Crossover signals between the Tenkan-Sen line (conversion line) and Kijun-Sen (baseline) can help investors identify trends and make buy/sell decisions.
- Buy signal: When Tenkan-Sen crosses Kijun-Sen from bottom to top. And the intersection point is below the Kumo cloud.
- Sell signal: When Tenkan-Sen and Kijun-Sen cross each other from top to bottom. And this intersection location is above the Kumo cloud.
How to conduct a transaction is as follows:
- Place orders based on signal candlestick patterns. Green candles are for buy orders (Buy), and red candles are for sell orders (Sell).
- Place stop-loss below the signal area for buy orders, and above the signal area for sell orders.
- Profit-taking point: Depends on the investor’s expected R: R ratio.
Note: R: R (Risk-Reward) is the ratio between the level of risk and the level of gain in a transaction, based on the investor’s profit goal.
Use advanced ichimoku when the Chikou-Span line crosses the price line
This is also a potential signal to enter an order.
- Buy signal: When the Chikou-Span line crosses the price line from bottom to top. Then the Chikou line moves away from the price line.
- Sell signal: When the Chikou-Span line crosses the price line from top to bottom, then the Chikou line moves away from the price line.
In this case, investors can execute orders according to the following steps:
- Entry point: Determined based on the signal candlestick pattern near the intersection area between the Chikou-Span line and the price line. Green candles are for buy orders (Buy), and red candles are for sell orders (Sell).
- Stop-loss point: Set below the intersection area, closest to the support point (for buy orders). Place on the intersection area, closest to the resistance point (for sell orders).
- Profit-taking point: Depends on the investor’s expected R: R ratio.
Note: R: R (Risk-Reward) is the ratio between the level of risk and the level of gain in a transaction, based on the investor’s profit goal.
Used when the Senkou Span A and Senkou Span B lines intersect
These are two important lines that form the Kumo cloud. Based on the intersection signal of these two lines, we can find effective buy/sell orders.
- Buy signal: When Senkou Span A cuts through Senkou Span B from the bottom up. The Kumo cloud will gradually change from red to blue.
- Sell signal: When Senkou Span A cuts through Senkou Span B from top to bottom. The Kumo cloud changes from blue to red.
How to execute a standard command in this advanced ichimoku case is as follows:
- Entry point: At the green candle near the intersection area for buy orders. For sell orders, the bearish signal candle is near the intersection area
- Stop-loss point: Set below the intersection area, close to the nearest support line (for buy orders). And place it above the crossover zone, close to the resistance line (for sell orders).
- Profit-taking point: Depends on the investor’s expected R: R ratio.
Note: R: R (Risk-Reward) is the ratio between the level of risk and the level of gain in a transaction, based on the investor’s profit goal.
Use advanced ichimoku when price breaks out of the Kumo cloud
The breakout trading strategy has many potential risks. But when successful, it can be highly profitable. Investors should only apply this advanced ichimoku strategy when they have accumulated enough experience.
- Buy signal: The main trend is down, but there are signs of weakness. Price crossed the Kumo cloud from the bottom up and closed above the Kumo cloud.
- Sell signal: The main trend is up, but there are signs of weakness. Price crosses the Kumo cloud from above and closes below the Kumo cloud.
The standard way to execute a command in this case is as follows:
- Entry point: At the signal candle right after the breakout occurs.
- Stop-loss point: Set below the intersection of Senkou Span A and Senkou Span B for buy orders, and above the intersection for sell orders.
- Profit-taking point: Depends on the investor’s expected R: R ratio.
Note: R: R (Risk-Reward) is the ratio between the risk level and the gain level in a transaction. Based on the investor’s profit goals.
See more: XTB: The most reputable and quality broker in UK
Instruct traders how to trade with advanced Ichimoku
It can be seen that each component of advanced Ichimoku can be used as an independent indicator.
- Entry point: Based on green signal candles at confluence areas of many different signals.
- Profit-taking point: At important milestones of the Fibonacci Extension, the trader’s R: R ratio must be guaranteed.
- Stop loss: Set below the nearest important support level. With a distance of about 10-15 pips from the crossover zone (depending on the trading time frame). Always remember to manage your account and be ready to spend 2% – 5% of your account on Stop-loss orders.
The way to execute buy/sell orders is similar. When using multiple signals in an advanced Ichimoku trading system, it is necessary to consider the confluence of multiple trading signals.
Epilogue:
Above is detailed information about advanced Ichimoku. Includes structure, how to read the indicator, and how to apply it in forex trading. We hope that through this Forex Trading article, investors can use the Ichimoku indicator effectively. From there, high profits will be achieved in the future.
Frequently asked questions:
The Holy Grail is related to advanced Ichimoku
This is a term that does not apply to Ichimoku or any other indicator or trading system. No tool is perfect or error-free. However, we can build our own method of success.
What is Ichimoku?
This is a trading system created by Japanese reporter Goichi Hosoda before World War II. Although it was announced more than 30 years ago, it has only recently received great attention from many investors.
How to view advanced ichimoku charts
To view advanced ichimoku charts, you can use forex trading platforms or online technical analysis tools. On the chart, there will be leading lines, fake lines, and clouds (Kumo). The interaction between components provides information about market trends and strengths and weaknesses.
