Ichimoku is a technical analysis indicator tool, used by many investors when trading forex. However, not all investors can apply this tool when doing technical analysis. This leads to mistakes when planning investment analysis strategies. In the article below, Forex Trading will explain how to use this tool in the most detail. Let’s see!
The basic definition of Ichimoku
Understanding the basic concepts and information of Ichimoku clouds is essential. They will help investors apply the indicator more conveniently and fluently.
What is the Ichimoku indicator in forex technical analysis?
This is a form of technical analysis indicator used by investors to identify support and resistance levels on the chart. Besides, it also measures trends and momentum. To provide investors with market trading signals. Simply put, when the Ichimoku cloud changes from red to blue, this is when the market reverses.
This indicator was conceived by a Japanese journalist. After its birth, it became a popular indicator today. Because the Ichimoku cloud can be completely used independently or combined with Fibonacci, RSI, MACD,… When combined with other indicators, the cloud’s signals will be more accurate and practical.
The ingredients that make up Ichimoku
Ichimoku indicators are also called clouds because their shape resembles a cloud on the chart. This indicator is built by moving the Average Line. It can completely help you determine price trends as well as support and resistance levels. Currently, the indicator includes the components of baseline, conversion line, lag line, lead line, and kumo.
In the image above, the Kijun-Sen baseline is the red line. The baseline of the Ichimoku cloud represents long-term price momentum. In particular, the Tenkan conversion line is the average price of the highest and lowest price in the last 9 trading sessions. On the chart, this line is green, used as a signal line.
The Chikou lag line of the Ichimoku cloud is simply understood as the closing price. This line helps investors have a better overview of past trends and current trends. With two paths A and B, path A is orange, and path B is gray. Kumo are colored areas called Ichimoku clouds for short, located in the middle area of paths A and B.
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How to calculate Ichimoku clouds
The Ichimoku indicator has a different calculation formula than other indicators. To be able to calculate this cloud, investors need to calculate each formula separately for each line of the indicator.
The baseline and conversion curves are both calculated using the formula = (highest price + lowest price)/2. The lagging line will be equal to the closing price at the chart’s current level. Path A is calculated using the formula = (conversion path + baseline)/2. Path B will equal = (highest price + lowest price)/2
Instructions for using Ichimoku for investors
Using the Ichimoku indicator at basic and advanced levels will depend on the needs of each investor. Whether at a basic or advanced level, this indicator will still bring benefits to investors when used.
Apply the basic Ichimoku indicator in trading
With the Kumo line, investors can easily determine the market trend at the current time. Kumo is clearly shown through their shape and color. There will be two cases when investors apply the Ichimoku cloud for analysis.
The first case is that the price will be above the path. This shows investors that the market is trending up. The second case is that the price is below the path. This signals that the market is in a downtrend. Investors can also determine the medium-term trend using the baseline of the Ichimoku indicator. And determine the short-term trend using the lagging line. Essentially, these are both regular moving averages. They help identify support and resistance levels just like EMA and MA lines.
Investors can also use the sideways zone of the Ichimoku clouds and trade. Investors can open trading orders within a range. If the price enters the red zone, then paths A and B will become reference levels. Investors can open a position at this price range.
Essentially, the Ichimoku lagging line is used as a momentum indicator. The lagging line is designed to show price deviations from the average. Significant deviations create overbought and oversold zones that indicate a possible correction or trend reversal.
How to use advanced Ichimoku Forex?
The use of enhanced Ichimoku clouds will provide more information and data to investors. Because this is a tool with a certain latency. Therefore, when using this indicator, investors should apply it when there is a clear trend. If the trend signal is unclear, it is easy to cause the signal to be noisy and misleading.
What happens when the Tenkan-sen line crosses the Kijun-sen line in the Ichimoku indicator?
With the trading strategy when the Tenkan-sen line crosses the Kijun-sen line in the Ichimoku indicator, investors can rely on the crossing signal to trade. If the two lines intersect from above and downward, the investor should place a sell position. If the two lines intersect from bottom to top, place a buy position at this time.
However, when trading the conversion line method crosses the baseline in the Ichimoku indicator. Investors should note that the trend may be very strong. In case these two lines overlap or are parallel, the trend will run even stronger.
If the crossover occurs below the Kumo cloud of the Ichimoku indicator, the sell signal will be stronger. On the contrary, the buy signal will be stronger when these two lines cross above the Kumo cloud. Because Kumo plays an important role as a support and resistance line. Investors should enter a buy order if it is a green candle and a sell order if it is a red candle. Stop loss below the signal zone for buy orders and above the signal zone for sell orders.
When the Chikou-span line intersects the price line with the Ichimoku cloud
When the Chikou-span line crosses the price line, it is also a potential signal for investors to trade. If the Chikou line cuts the price line from below upwards and then the Chikou line moves away from the Price line. At this point, investors should place a buy order. If the Chikou line of the Ichimoku indicator cuts the price line from above and down and goes away from the price line, the investor should place a sell order.
To determine the entry point, investors should determine the signal candle located near the intersection of the two lines. If it is a green candle, look for a buy order and if it is a red candle, look for a sell order. With the stop loss level, investors can cut below the intersection area and closest to the support candle if it is a buy order.
The phenomenon of Senkou Span A and Senkou Span B intersecting within the Ichimoku range
Path A and path B are two important paths to create the Kumo cloud of the Ichimoku indicator. Besides, investors can also use the intersection signal of these two lines to find buying and selling points. With a buy signal if the main trend is an uptrend. And there is the Senkou Span A line intersecting with the Senkou Span B line from below going up. At this time, the Kumo cloud needs to change from red to blue before you can place a buy order.
With a sell signal if the main trend is a downtrend. There is the Senkou Span A line intersecting with the Senkou Span B line from above going down. At this time, the Kumo cloud of the Ichimoku indicator needs to change from green to red before you can place a sell order. Investors enter buy orders at the green candle near the area where the two lines intersect. With a bearish signal, place an order at the red candle near the intersection area. Investors can set a stop loss below the intersection area coinciding with the support and resistance line.
When the price has broken out of the Kumo cloud
The trading strategy when the price has broken out is quite risky for investors. However, it will bring more profits than other trading strategies. For investors who have experience trading breakout prices. Investors can enter as soon as the price breaks out of the Kumo cloud on the Ichimoku indicator or wait to retest the breakout area.
Investors place buy orders when the main trend is down but there are signs of weakness. At the same time, the price breaks above the Kumo cloud, the price closes above the Kumo cloud. Place a sell order if the main trend is uptrend and there are already signs of weakness. At that time, the price broke the Kumo cloud from top to bottom, the closing price was still below the Kumo cloud of the Ichimoku indicator.
Instructions on how to trade with Ichimoku at an in-depth level
Investors can completely independently use Ichimoku lines as an independent depth indicator. Combining additional signals will also help investors increase the probability of successful transactions.
With a buy order, investors can look for an uptrend. Besides, observe the Tenken line intersecting the Kijun line of Ichimoku in an upward direction. Path A intersects path B from the bottom up and at that moment the Kumo cloud has changed color. If these signals appear at the same time, the investor can place a buy order.
With a sell order similar to a buy order, investors combine lines in the Ichimoku trading system. If the Tenkan line cuts Kijun a segment from top to bottom. Path A intersects path B from above and the Kumo cloud changes color. If the Chikou line is below the price line, then investors should place a sell order.
Instructions on how to create the Ichimoku system on Tradingview
To use the Ichimoku indicator on the TradingView platform, investors can refer to the steps below to install the indicator:
Step 1: Access the website of the TradingView platform, and select “Chart” mode. Next, select the currency pair or coin you want to track on the chart.
Step 2: Select the indicator on the toolbar and click to search for “Ichimoku Cloud”
Step 3: After installing the Ichimoku indicator on the toolbar, investors can now fully apply it when doing technical analysis.
Investors can use the “Settings” section to adjust the parameter level accordingly. The choice of setting parameters for the indicator will depend on the needs of each investor. Investors can refer to the parameters below to set up and use the Ichimoku indicator.
Best settings for Ichimoku
Before entering the parameters for the Ichimoku indicator, investors will see 3 variables of the indicator. Includes Period Tenkan, Period Kijun and Period Senkou Span B dogs. These 3 variables have corresponding values including 9, 26, and 52. These are the default values of the indicators. Using default parameters is quite suitable for new investors.
If the investor does not know how to set the parameters. You can use the default parameters. After setting the default parameters, investors can experience using it.
When is the best timeframe for the Ichimoku indicator?
To be able to use the Ichimoku indicator most effectively, investors should choose the Daily (D1) time frame. However, this does not mean that the Ichimoku indicator can only be used on frame D1. Nowadays the cloud indicator is also used by investors in smaller time frames from M1, M3, or M5.
However, no matter which trading framework is used, investors still need knowledge. Besides, investors also need to clearly determine the advantages and disadvantages of using Ichimoku in each time frame.
If investors want to trade according to the trend, the condition to apply is that the price must move in one direction for a long period of time. In a trend, larger time frames will influence smaller time frames. And the smaller timeframe will support the larger timeframe.
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Summary table of common trading signals in the Ichimoku indicator
Using the Ichimoku indicator not only requires investors to clearly understand how to use it. Let Forex Trading classify trading signals for cloud indicators now.
| The names of the signals are in the Ichimoku indicator | Direction of indicators | Trends and notes for signals |
| Golden Cross signal | Price increase direction | Short-term trend |
| Dead Cross Signal | Discount direction | Short-term trend |
| Tenkan line and Kijin line signals when pointing up | Price increase direction | Mid-term trend |
| Tenkan line and Kijin line signals when pointing down | Discount direction | Mid-term trend |
| Signal orange clouds | Price increase direction | Long-term trend |
| Signal purple clouds | Discount direction | Long-term trend |
| Signal when the price has broken the Senkou Span B line of the Ichimoku indicator | The bullish or bearish direction depends on the direction of the line’s breakout | This is an early signal so investors can further confirm buy or sell signals in the market |
Conclude
Although the Ichimoku indicator provides extremely useful and accurate signals to investors. However, it is a type of indicator that requires investors to have solid professional knowledge when using it. Besides, investors can combine the use of this indicator. Trading fluently requires time and experience in the market. Best of all, traders can use the Ichimoku indicator on the TradingView platform completely free of charge. So, investors, what are you waiting for, download and experience right now. Finally, hopefully, the information that Forex Trading brings will be useful to readers.
FAQs
How does the Ichimoku indicator work in the market?
Ichimoku includes 5 main structural lines. Each path will have different ways of operating and uses.
Is the Ichimoku indicator a predictive indicator?
The Ichimoku technical analysis tool is an indicator that predicts the market situation.
Can the Ichimoku cluster indicator be used in the Scalping trading method?
As mentioned, Ichimoku works best in the D1 frame. However, investors can still apply the Ichimoku indicator and other indicators to trade Scalping.
