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Ichimoku | Reading Ichimoku Charts | Ichimoku Trading Strategies

MT4 Ichimoku IndicatorWhat does Ichimoku mean?

Ichimoku is a Japanese phrase that means “one glance”. Its creator Goichi Hosoda named Ichimoku that way because he wanted it to be one indicator that takes place of everything without the need of other factors or indicators.

What does Ichimoku consist of?

1: Tenkan-Sen: A 9-period Moving Average. This is the first line you have to adjust when you apply Ichimoku to a chart.

2: Kijun-Sen: This is a 26-period Moving Average. It is usually the second line you have to adjust when you apply the Ichimoku to a chart.

3: Chinkou-Span: Current price plotted 26 periods earlier.

4: Cloud: Better known as “Kumo”, which simply a Japanese word for “cloud”, and that is exactly what it is. Kumo tells us the volatility of the market, the wider the Kumo is, the more volatility is in the market. Note that in this article, you will encounter both words “Kumo” and “Cloud”, you don’t have to worry at all, both are the same and there is no difference at all between them. Just use the one that comes to your mind first.

How can I determine my bullish or bearish position using Ichimoku?

This is very easy.

When the Tenkan-Sen crosses up and walks above Kinjun-Sen, this means we have a bullish signal (buying signal). Look at this snapshot:

Reading Ichimoku Charts

When the Tenkan-Sen crosses down Kijun-Sen, this means that we are having a a bearish signal (selling signal). Take a look at this:

Ichimoku Trading Strategies

Trading with Ichimoku Clouds

Kumo means cloud in Japanese language, and the Kumo of Ichimoku is simply a shaded area between two lines, one of them represents the range of resistance during a downtrend and support during uptrend (this is really not important to understand or to memorize).

Ichimoku Cloud

When the trend is moving above the cloud that usually means it is an uptrend and then the Kumo would work as a support for the market. We should look for buying opportunities.

trading with ichimoku clouds

When the trend is moving under the cloud that usually means it is a downtrend and then the cloud would work as a resistance for the market. We should look for selling opportunities.

ichimoku clouds

Can Kumo (Ichimoku’s Cloud) indicate what will happen in the future?

Nobody can tell exactly what will happen in the future, however, still Ichimoku’s Kumo produces 26 periods ahead of time. BUT, this doesn’t necessarily mean that price action will follow Kumo’s direction.

How can I trade with Kumo?

Remember that Kumo, at the end of the day, is just an interpretation of the trend direction. So (as we already learned, that market above Kumo is an uptrend market, and vise versa) if the market is moving above Kumo we should be looking for buying opportunities.

So, if we are looking for an Ichimoku buy signal, there are three circumstances we could face:

1: Tenkan-Sen crosses up Kijun-Sen (remember? this is a buying signal) above the Kumo. This means a VERY strong buying signal, because it simply agrees with the direction of the trend, which is going up (we knew it is going up because it is above the Kumo of course).

2: Tenkan-Sen crosses up Kijun-Sen inside the Kumo, which means an average-strength buying signal.

3: Tenkan-Sen crosses up Kijun-Sen below the Kumo, which is a weak buying signal, because it doesn’t agree with the direction of the trend, which is probably not an uptrend.

Ichimoku buy signal

If we are looking for selling opportunities, we have three chances:

1: Kijun-Sen crosses up Tenkan-Sen (seling signal) below the Kumo. This is a very strong selling signal, because it agrees with the direction of the trend, which is a downtrend.

2: Kijun-Sen crosses up Tenkan-Sen inside the Kumo. This is considered to be an average-strength selling signal.

3: Kijun-Sen crosses up Tenkan-Sen above the Kumo, which is considered to be a weak selling signal, because it disagrees with the direction of the trend, which is probably an uptrend.

Ichimoku sell signal

What is Ichimoku’s Chinkou-Span?

Chinkou-Span is basically the current price plotted 26 periods earlier.

  • If the current price is (slightly) higher than the lastest piece of Chinkou-Span, this is a bullish signal.
  • If the current price is (slightly) lower than the lastest piece of Chinkou-Span, this is a bearish signal.

SO

To buy with Ichimoku, we should be looking for these circumstances combined:

  • Tenkan-Sen crosses uo (goes above) Kijun-Sen.
  • The crossover happens ABOVE the Kumo (cloud).
  • Chinkou-Sen is lower than the current price.

Note that losing one of those three factors would mean that our buy signal is weaker.

To sell with Ichimoku, we should be looking for:

  • Kijun-Sen crosses up (goes above) Tenkan-Sen.
  • The crossover happens BELOW the Kumo (cloud).
  • Chinkou-Sen is higher than the current price.

Where can I put my Stop Loss when trading with Ichimoku?

There are basically two default places that traders would place their stops at when trading Forex with Ichimoku. Let’s look at them:

For bulls:

Bulls (buying traders) would look to set their stops on one of those:

  • The Kijun-Sen level (usually very short room for price to move in)
  • Level of last lowest support (more risk)

However, for strong buy signals, traders could be willing to give more room for the price to range in, so they would place their stop on either the upper side or the lower side of the Kumo, depending on how risk-taking they can be.

For bears:

Bears (selling traders)

  • The Kijun-Sen level (usually very short room for price to move in)
  • Level of last highest resistance.

However, for strong sell signals, traders could be willing to give more room for the price to range in, so they would place their stop on either the upper side or the lower side of the Kumo, depending on how risk-taking they can be.

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