Technical analysis is an analysis method that new investors often favor. Among complex technical indicators, the Ichimoku cloud is one of the tools that are quite difficult to understand for beginners (“F0”). So what is ichimoku cloud? Is The Ichimoku indicator capable of predicting buy and sell points? Let’s explore this below with Forex Trading!
What is Ichimoku How do you understand Ichimoku forex?
In the field of forex trading, Ichimoku is known as a popular technical analysis tool. Do you have any understanding of what is Ichimoku? Let’s explore this concept and how it is used in forex trading.
What is Ichimoku
Ichimoku is a technical indicator developed by Japanese trader Goichi Hosoda. It is a collective analysis tool that helps investors see multiple signals on candlestick charts. Ichimoku consists of 5 ingredients, of which 2 ingredients combine to form clouds. Therefore, this indicator is also known as the Ichimoku cloud.
How does the Ichimoku cloud indicator work?
Ichimoku consists of many ingredients. Although traders can eliminate certain elements of it in specific strategies, knowledge of all components is necessary. Because to understand how this indicator works.
The purpose of what is Ichimoku
Example of a trading chart in the TabTrader app with the Ichimoku cloud indicator. Cryptocurrency traders can take advantage of this system to gather information about overall market trends and direction, as well as entry and exit points, support and resistance zones, and potential strength. This helps identify both real and fake trend reversals. In short, these factors are all part of the analysis of what is Ichimoku.
Ichimoku uses trading data from the past and present to produce signals, helping traders understand how an asset may react at a specific price level. Although it can be used with any asset class, higher volatility is better suited to this system. This increases the scope of its application to cryptocurrency, almost 100 years since its creation.
See more: Explore Ichimoku – indicator for professionals
How to read the Ichimoku cloud
Prices along with their baselines and conversions are often referred to as moving averages, and their use for trading signals is similar to the use of price-moving average crossovers, or between two moving averages.
In the example of the BID chart, at the end of 2019, the price of BID showed signs of moving sideways and entering the cloud. At the same time, the conversion line also goes below the baseline.
This signal shows that the price is temporarily consolidating. Then, the price increased above the baseline and the conversion line also crossed above the baseline, creating a buy signal for BID. Currently, there is no sell signal for BID.
Some ways to use signals can be summarized as follows:
Ichimoku Forex Signal Bullish
- Price moves through the cloud (trend).
- The cloud turns from red to green (a signal of flow in the trend).
- Price moves above the baseline (momentum), while the conversion line moves above the baseline (momentum).
Ichimoku Forex Signal Bearish
- Price runs below the cloud band (trend signal).
- The cloud turns from blue to red (signal of flow in the trend).
- Price moves below the baseline (momentum), while the conversion line moves up below the baseline (momentum).
Types of Ichimoku Clouds
After mastering “What is ichimoku “. For traders to take advantage of the Ichimoku cloud effectively, users need to have a clear understanding of all the components included in this indicator. The Ichimoku Cloud requires a thorough understanding as it is a comprehensive trading system. Although complicated, it brings great efficiency in investing. Although quite challenging, the number of people using the Ichimoku cloud as a regular trading tool is very large, which shows the effectiveness of this indicator.
Kijun-sen (Standard Line) in Ichimoku Forex
Kijun-sen is a long-term moving average in the Ichimoku trading system with 22 sessions. It represents the average price of the previous 22 sessions. If Kijun-sen remains stable in the last few sessions, this shows that the average price of the previous 22 sessions has not fluctuated much. On the contrary, if Kijun-sen fluctuates strongly, this indicates that in the recent period, the stock has experienced large fluctuations.
The calculation formula of Kijun-sen is: (Highest price + Lowest price) / 2.
Tenkan-sen (Conversion Line) when trading with the Ichimoku cloud
Tenkan-sen is a line showing the average price of the last 9 sessions. In contrast to Kijun-sen with 22 sessions, Tenkan-sen shows a shorter term. Tenkan-sen often acts as an early signal line for the market. When Tenkan-sen and Kijun-sen cross each other, this is often the favorite trading point for investors.
The calculation formula of Tenkan-sen is (Highest price + Lowest price) / 2.
Chikou-span (Late Line)
Chikou-span, also known as the lagging line, allows you to compare the current price with the price of 26 sessions ago. The Chikou-span line is calculated from 26 sessions behind compared to the current time.
The calculation formula is Chikou-span = Current closing price.
Senkou-span A (Path) in ichimoku forex
Senkou-span A is calculated from 26 sessions ahead. Its mission is different from Chikou-span. Senkou-span A combines with Senkou-span B to form a cloud and determine the stock’s trend.
The calculation formula is Senkou-span A = (Tenkan-sen + Kijun-sen) / 2.
Use Senkou-span B when trading the Ichimoku cloud
Senkou-span B is also calculated 26 sessions ahead, just like Senkou-span A. Senkou-span B uses the average highest and lowest prices of 52 trading sessions. Senkou-span B combines with Senkou-span A to form support and resistance lines, also known as clouds.
The calculation formula is Senkou-span B = (Highest price + Lowest price) / 2.
Market trend observations related to what is Ichimoku.
Observing to understand the ” what is Ichimoku cloud indicator ? “ on the chart, investors can detect situations and draw conclusions as follows:
Tenkan-sen and Kijun-sen
- When Tenkan-sen cuts Kijun-sen from below and the cutting position is below the cloud: This is the point to buy the stock. On the contrary, if the cross is above the cloud, it may be just a correction or the bearish trend is not too strong.
- When Tenkan-sen and Kijun-sen run parallel on the chart: This usually shows that the price candlestick trend is moving sideways. If the position is above the cloud, it usually indicates that the uptrend is still strong. On the contrary, if it is below the cloud, there is usually a sideways period before the price declines.
Senkou-span A cuts across Senkou-span B
When Senkou-span A cuts through Senkou-span B from the bottom up, the cloud will turn blue. This is a buying signal for investors. The blue cloud, along with the other signals above, indicates a strong uptrend in the stock.
Chikou-span crosses the price line when trading with the Ichimoku cloud
When Chikou-span crosses the price line from the bottom up, this is a positive buying signal for investors. On the contrary, when Chikou-span crosses the price line from above, this is a selling point for investors. Chikou-span is considered a lagging line, allowing us to compare the current price with the previous 26 sessions.
See more: Optimize trading with IC Markets Exchange
Objective reviews from experts with Ichimoku
After studying the reviews of professional traders with the concept of what is Ichimoku? Ichimoku can use past data such as paths, and delay paths. However, the reproducibility of these data is not as high as indicated.
Similar to other technical indicators, traders can also create inaccurate signals on price candles, causing losing decisions for investors. When using time frames such as 1 hour, 4 hours, etc., Ichimoku clouds can provide signals, but they often cannot cover the entire chart system.
Conclude
With the above article, Forex Trading hopes to provide readers with the most useful knowledge about clouds and what is Ichimoku. From there, I hope readers will successfully apply advanced Ichimoku to the investment process. And don’t forget to follow our website to get more interesting knowledge for trading!
FAQ
How does Ichimoku work?
Ichimoku uses its components to generate trading signals based on the interaction between them. For example, when the Tenkan Line crosses the Kijun Line from below, it can be considered a buy signal.
What specific trading strategies are there based on Ichimoku?
Some popular strategies include crossovers of lines, trading in the direction of the Kumo cloud, and looking for support and resistance in areas of lines and clouds.
What strengths and weaknesses does Ichimoku have?
The strength of what is Ichimoku beyond its ability to provide a lot of information in a single picture is that it also helps traders make smart decisions. However, it requires time and experience to understand and use effectively.
