In the foreign exchange market, there is a trend indicator commonly used by traders, which is Ichimoku Forex. This is a standard trend indicator that belongs to the list of built-in indicators on MetaTrader and other forex trading platforms. So what is the role of the Ichimoku cloud in Forex? How to find maximum profit from advanced Ichimoku? Let’s find detailed answers to Forex Trading through the article below.
What is Ichimoku? Things traders need to know about the Ichimoku indicator
Traders should combine indicators. Or use many other analytical tools to form a complete trading system. However, there still exists an indicator that can independently do that. And that is Ichimoku Forex. This is one of the most commonly used famous indicators today. Here are the things traders need to know about the Ichimoku indicator.
Structural analysis of Ichimoku Forex
First, we will analyze the structure of Ichimoku Forex. This indicator consists of 3 elements: Three lines and two Ichimoku clouds of different colors.
In which: The two Ichimoku indicator lines are separate tools that act as moving averages. However, they are not moving averages and they possess some of the following properties:
- The third line is a type of oscillator to filter trading signals.
- Ichimoku clouds can move up or down and the colors represent the current trend in the market.
Include:
- Tenkan Sen (Red Conversion Line): is the average of the highest high and lowest low in the first period with the default value of 9.
- Kijun Sen (Blue Standard Line): is the average of the values of the highest high and lowest low in the 2nd period with the default value of 26.
- Senkou Span and Senkou Span B: are the edges of the cloud. With line A being the average of the Tenkan and Kijun values, drawn forward 26 periods. Line B is the average of the highest peak and lowest trough over the past 52 periods.
- Chikou Span (Green Lagging Line): also known as Lagging Span Ichimoku. Used to calculate today’s closing price projected back 26 days on the chart.
- Kumo: 2 paths A and B form a cloud-shaped part called Ichimoku Forex cloud. Or also known in Japanese as Kumo clouds.
See more: Explore Ichimoku – indicator for professionals
What is the formula for calculating the Ichimoku cloud in Forex?
Next, what traders need to learn about the Ichimoku cloud is the calculation formula. In particular, each line of Ichimoku will be calculated according to its formula, specifically:
|
Kijun Sen = ((High, M)Max + (Low, M)Min) / 2 |
In there:
- (Peak, M) Maximum is the highest peak in a period
- (High, M)Min is the lowest low in a period
|
Tenkan Sen = ((High, N)Max + (Low, N)Min) / 2 |
In there:
- (Peak, N)Maximum is the highest peak in a period
- (Low, N)Min is the lowest low in a period
|
Senkou Span A = (Tenkan Sen + Kijun Sen) / 2 |
In there:
- Senkou Span A is projected forward according to the set period of 26
|
Senkou Span B = ((High, Z)Max + (Low, Z)Min) / 2 |
In there:
- Maximum (Z) is the peak in the selected period
- Minimum (Z) is the bottom in the selected period
- Senkou Span B defaults to 52, forward 26 periods
Learn and analyze the operating trend of the Ichimoku Forex indicator
After understanding the structure and how to calculate the Ichimoku Forex cloud. Forex Trading will guide readers on how to analyze operating trends based on the Ichimoku cloud indicator.
In particular, the part that is limited between Senkou Span A and Senkou Span B is called Kumo. It will have different colors, depending on whether the Senkou Span A line will be above or below the Senkou Span B line. And there will be 2 ways to determine the general trend via Kumo:
- Analyzing the Ichimoku indicator based on price lines:
– Price is above the cloud =>> Uptrend
– Price is below the cloud =>> Downtrend
– Price is in the cloud =>> Sideways trend
- Ichimoku Forex analysis based on the blue Ichimoku and red Ichimoku clouds:
– Span A is above Span B =>> Blue clouds =>> Uptrend
– Span B is above Span A =>> Red clouds =>> Downtrend
Additionally, the cloud is shifted forward 26 days so it provides a glimpse of future support or resistance.
Instructions on how to use the Ichimoku Forex cloud effectively for traders
To be able to use the Ichimoku chart effectively in forex trading. Traders can apply the following 4 strategies.
How to apply advanced Ichimoku when the Tenkan-Sen line crosses Kijun-Sen
When there is a crossover signal between the Tenkan Sen and Kijun Sen lines, it will help traders recognize the trend to enter a positive Buy/Sell order. At that time:
- Buy signal: If Tenkan Sen crosses Kijun Sen from bottom to top and the crossing point is below the Kumo cloud.
- Sell signal: If Tenkan Sen crosses Kijun Sen upwards and the crossing point is above the Kumo cloud.
The order entries in this case are as follows:
- Enter orders according to the signal candlestick: If looking for a Buy order, choose a green candle, and choose a red candle if looking for a Sell order.
- You should cut loss below the signal zone with Buy orders and above the signal zone with Sell orders.
- Profit taking point: According to investors’ expected R: R ratio.
Ichimoku Forex strategy when Chikou-Span cuts the price line
Using Ichimoku Forex when Chikou Span crosses the price line is also a potential entry signal.
- Buy signal: If Chikou Span crosses the price line downward and the Chikou line moves away from the price line.
- Sell signal: If the Chikou Span line cuts the price line from above and moves away from the price line.
How to enter an order when Chikou Span crosses the price line:
- Entry point: Based on the signal candle located near the intersection of Chikou Span and the price line. Choose a green candle if you enter a Buy order and a red candle if you enter a Sell order.
- Stop loss point: Located at the bottom of the intersection, closest to the support line if entering a Buy order. Or on the intersection area, closest to the resistance line if entering a Sell order.
- Profit taking point: According to investors’ expected R: R ratio.
Use the Ichimoku cloud when the Senkou Span A and Senkou Span B lines intersect
If Senkou Span A crosses Senkou Span B to create a Kumo cloud, you can find an effective Buy/Sell order based on the crossover signal.
- Buy signal: When Senkou Span A cuts Senkou Span B from the bottom up Kumo changes from red to blue.
- Sell signal: When Senkou Span A cuts Senkou Span B from above Kumo changes from green to red.
In this case, the standard command will be entered:
- Entry point: Buy order entered at the green candle near the intersection area. The sell order was entered at the bearish signal candle near the intersection area.
- Stop loss point: For Buy orders, it is below the intersection area coinciding with the nearest support line. For the Sell order, stay above the intersection closest to the resistance line.
- Profit taking point: According to investors’ expected R: R ratio.
See more: Optimize trading with IC Markets Exchange
Price Breakout from the Kumo Cloud
The last case where Ichimoku Forex should be used is when the price breaks out of the Kumo cloud. Although this strategy has many potential risks, if successful, it will bring traders large profits. Therefore, traders should gain knowledge and experience before applying this strategy.
- Buy signal: Downtrend, showing signs of weakening. Breakout price breaks Kumo in the downward direction. At the same time, the closing price was above the Kumo cloud.
- Sell signal: Uptrend, showing signs of weakening. Breakout price breaks Kumo in the top-down direction. And the closing price was below the Kumo cloud.
Instructions on how to enter standard orders for the following cases:
- Entry point: At the signal candle right after the breakout.
- Stop loss point: For Buy orders, enter below the intersection area of the A-B line. For Sell orders, enter above the intersection area of the A-B line.
- Profit taking point: According to trader’s expected R: R.
Summary:
So in the above article, Forex Trading has told readers what Ichimoku is. At the same time, instructions on how to use Ichimoku Forex effectively in each case. If you still have unresolved questions, please leave a comment below. Then update the latest answers from us through the articles!
FAQs:
Is Ichimoku Forex a leading indicator?
Ichimoku is a forewarning indicator. It can be used to predict the market situation in the medium or long-term outlook.
What is the best indicator to combine with advanced Ichimoku?
As mentioned above, Ichimoku can operate as a standalone trading system. However, if you want to combine it, you can use Ichimoku with futures contract volume indicators or price action pattern indicators…
What is the best timeframe for Ichimoku Forex?
The Ichimoku indicator works best in the weekly and daily timeframes (specifically the 4-hour timeframe).
