Ichimoku is an important tool in forex technical analysis. The birth and operations of Ichimoku were an interesting experience. In particular, it is extremely useful for those who are interested in the Forex market. Let’s explore together how to use the advanced Ichimoku cloud effectively in Forex trading. Forex Trading‘s sharing article will help you better understand the Ichimoku Cloud. Thereby, you can identify its advantages and limitations. At the same time, you can apply it in forex trading to maximize profits.
What is chimoku cloud?
Ichimoku cloud is a versatile technical tool in Forex market analysis. It helps identify support, resistance, trends, and trading signals. Ichimoku cloud was developed in the 1930s. It became popular from the book “Ichimoku Kinko Hyo – Balance Chart at a Glance” in 1969. Ichimoku attracted the attention of many investors. Because it can be applied to all types of financial instruments and trading time frames. The goal is to help investors identify market trends. At the same time, it helps locate support and resistance zones. Plus it provides trading signals. However, Ichimoku clouds need to be combined with other indicators to minimize risks.
What is Ichimoku?
Ichimoku cloud is also known by the name Ichimoku Cloud (Ichimoku Kinko Hyo). This is a versatile engineering tool. It is commonly used for analysis and determination. Targets are support levels, resistance levels, trends, and momentum measurements. At the same time, Ichimoku cloud provides trading signals in the Forex market.
Ichimoku was discovered by Goichi Hosoda, a Japanese journalist. He diligently recorded and compiled daily rice prices. Finally, the journalist collects the rules and reactions of some specific areas. However, it was not until 1969 that he announced and widely applied this tool. It is shown through the book “Ichimoku Kinko Hyo – Balance Chart at a Glance”.
Ichimoku cloud chart is a tool that shows the increase/decrease of market trends. The Ichimoku Cloud, or Ichimoku Cloud, is a technical indicator. The purpose is to identify support and resistance levels, momentum, and appropriate trading signals.
When the Kumo cloud turns from red to blue, this symbolizes the possibility of price increases. While changing from green to red is a sign of a bearish trend. Cloud height also plays an important role. If it is high, the market is active. On the contrary, if the clouds are thin, it can be seen that the market is quiet, with few transactions.
Meaning of the Ichimoku indicator
Ichimoku cloud is an advanced technical analysis tool. It provides more information than conventional tools. However, Ichimoku clouds do not always provide perfect and accurate signals.
Ichimoku is a system that works based on the principle of current trends. Therefore, they may have a certain delay. In unclear market trends, Ichimoku may provide inaccurate signals. To minimize risks, investors should use Ichimoku together with other indicators.
The summary of Ichimoku’s role and meaning is as follows:
- Navigating market trends: Using elements of the Ichimoku cloud. Thereby, investors can identify market trends. If the price is moving above the Kijun-Sen or Tenkan-Sen line, or below the Chikou Span line, the market is bullish. Contrary, if the price is located below the Kijun-Sen or Tenkan-Sen line, or above the Chikou Span line, the market is falling. The thickness and color of Kumo clouds are used to predict future price movements. Similarly, the distance from the price line to the Kumo cloud is also used.
- Locating support and resistance zones: The components in Ichimoku all have important contributions. Both the Kijun-Sen baseline, Tenkan-Sen signal line, Chikou-Span, and the Kumo cloud play essential roles in identifying important support and resistance levels on the chart.
- Order opening and closing signals: Use the signal to cross between the baseline and the signal line. Investors can predict and execute Buy/Sell orders according to the trend. Or they can make a decision when the price breaks through the cloud. This is important information when deciding to close the order.
Pros and cons of Ichimoku Forex
Advantages of applying Ichimoku Cloud to analysis and trading:
- This indicator can be applied on a variety of trading markets. It includes stocks, foreign exchange markets (Forex), futures contracts, options, and indices. Or even the precious metals market like gold and silver…
- Thanks to the Ichimoku cloud, investors can quickly generate ideas. At the same time, they can set up transactions in just a few minutes. This helps them recognize price direction, market feeling, momentum, and trend strength.
- Ichimoku provides a diverse way of displaying data by combining 3 indicators. This helps investors and analysts better understand price movements. From there, they can make more accurate and informed trading decisions.
Ichimoku chart is a tool that focuses on identifying price trends. It works best in markets with clear trends. It helps investors detect the direction of price movement. The Ichimoku indicator is also capable of recognizing fake breakouts. The cloud can identify trends within the trading timeframe.
See more: How to trade advanced Ichimoku cloud in Forex
Basic methods of studying Ichimoku clouds
The boundary between Senkou Span A (blue) and Senkou Span B (red) is known as the “cloud”. It is also called Kumo in Japanese and Cloud in English. The color changes depending on whether Senkou Span A is above or below Senkou Span B.
There are two methods for determining the general trend using Kumo:
The first method is based on the price’s 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
The second method depends 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
Over the next 26 days, the movement of the forex Ichimoku cloud is indicative of support. Or this could also be a sign that resistance will appear in the market.
Instructions for using the basic and advanced Ichimoku indicator for beginners
In Ichimoku cloud trading, many factors combine to create accurate Buy/Sell signals. It is important to choose the entry point based on the candlestick pattern and Kumo cloud position. Place your stop loss near the resistance level or crossover area to protect the order. Use the Fibonacci extension to locate the profit-taking point, but need to adjust the appropriate R: R ratio. Compliance with this rule and principle is the key to success in Ichimoku trading.
Ichimoku Forex when the Tenkan-Sen line crosses the Kijun-Sen line
The intersection between the Tenkan-Sen and Kijun-Sen lines is an important sign for trend recognition. At the same time, this is an opportunity for investors to make appropriate Buy/Sell orders.
- When the Tenkan-Sen line crosses the Kijun-Sen line from bottom to top the intersection is below the Kumo cloud. This is a Buy signal.
- When Tenkan-Sen and Kijun-Sen cross each other from top to bottom, the crossing point is above the Kumo cloud. That is a Sell signal.
The command entry process is as follows:
- Choose orders based on the signal candlestick pattern. A green candle gives a Buy signal and a red candle gives a Sell signal.
- Place stop loss below the signal zone for Buy orders and above the signal zone for Sell orders.
- Decide on the take profit point based on the R:R ratio that the investor expects.
Ichimoku when the Chikou-Span line crosses the price line
This is also a potential sign to enter a command.
- When Chikou-Span crosses the price line from bottom to top the Chikou line goes further than the price line. This is a Buy signal.
- When Chikou-Span crosses the price line from top to bottom the Chikou line goes further than the price line. This is a Sell signal.
In this situation, investors will take the following steps:
- Order entry point: Evaluation based on candlestick pattern near the intersection of the Chikou-Span line and the price line. Choose green candles for Buy orders and red candles for Sell orders.
- Stop loss: Placed below the intersection area, near the strongest support for Buy orders. And place it above the intersection area, near the point of strongest resistance for the Sell order.
- Profit taking point: Based on the investor’s expected R: R ratio.
Ichimoku cloud when the Senkou Span A and Senkou Span B lines intersect
These are two important main lines in forming Ichimoku forex. Based on the intersection signal between these two lines, we can determine effective Buy/Sell orders.
- Buy Signal: When Senkou Span A crosses Senkou Span B from the bottom up. At the same time, the Kumo cloud changes from red to blue.
- Sell Signal: When Senkou Span A crosses Senkou Span B from above. At the same time, the Kumo cloud changes from blue to red.
Standard command entry method in this situation:
- Entry point: Select the green candle near the intersection area for the Buy order. Choose a red bearish signal candle near the intersection area for a Sell order.
- Stop loss: Placed below the intersection area, close to the nearest support line for Buy orders. At the same time, it placed above the crossover zone, close to the resistance level for a Sell order.
- Profit taking point: Based on the set target R: R ratio.
When the price breaks out of the Kum cloud
Breakout trading strategies are always high-risk. However, if done successfully, it can bring significant profits. Investors only apply this strategy when they have extensive experience. Because they need to handle complex situations that may arise well.
- Buy Signal: Although the main trend is down, there are signs of weakness. Price crosses the Kumo cloud from the bottom up and closes above the Kumo cloud.
- Sell Signal: Although the main trend is up, there are signs of weakness. Price crosses the Kumo cloud from above and closes below the Kumo cloud.
The standard order entry method for this situation is:
- Entry point: Choose the signal candle right after the breakout.
- Stop loss: Set below the intersection of Senkou Span A and Senkou Span B for Buy orders. At the same time, it is placed on the intersection area for Sell orders.
- Profit taking point: Based on expected R:R ratio.
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How to trade with advanced Ichimoku cloud.
Each component of the Ichimoku cloud can be used as an independent indicator.
- Entry point: Follow the green signal candle at the confluence of many different signals.
- Take profit point: At important points of the Fibonacci Extension, traders must still ensure R: R.
- Stop loss: Set below the nearest important support level. Best with a distance of about 10-15 pips (can be adjusted depending on the trading time frame). Always remember to manage your account, and be ready to pay a Stop Loss order of 2% to 5% of your account.
Trading Buy/Sell orders in the advanced Ichimoku system is similar to using multiple signals. It requires the confluence of multiple indicators as follows:
- When the Tenkan-Sen line crosses the Kijun-Sen line from top to bottom. At the same time pass through the intersection point above the Kumo cloud.
- When the Senkou-Span A line crosses the Senkou-Span B line from top to bottom. At the same time passing through the Kumo cloud changes color.
- When the price line is above the Chikou-Span line.
Execute a Sell order according to the current trend:
- Entry point: Select the red signal candle. Also, make sure that the candle is below the Kumo cloud.
- Stop loss: Place stop loss above the nearest resistance level. Or near the intersection area, ensure that the Stop loss ratio does not exceed 2% for each order.
- Take profit point: Use the Fibonacci extension to locate levels 61.8% – 168%. At the same time, ensure the R: R ratio is suitable for each individual’s trading strategy.
Epilogue
In short, Ichimoku is a diverse and powerful technical analysis tool. The main purpose is to help investors identify current market trends. With experience and solid understanding, Ichimoku can become a useful tool. Hopefully, the above sharing from Forex Trading can help you understand Ichimoku cloud.
Frequently asked questions
How to learn and understand more deeply about Ichimoku Cloud?
To learn and understand more deeply about the Ichimoku cloud, you can read books. Or you can take courses or search for information on websites. Also, learn about forums or blogs specializing in Forex trading.
How to read and apply Ichimoku Cloud in trading?
To read and apply Ichimoku cloud, you need to understand how its components interact with each other. And you must know how to identify buy and sell signals based on them. This often requires skill and experience in chart analysis.
What are the main ingredients of Ichimoku cloud?
Ichimoku cloud includes main components such as Kijun-Sen, Tenkan-Sen, Senkou Span A, Senkou Span B, and Chikou Span. Each of these components has a special role in analyzing trends and trading signals.
