Rolf Indicators , Technical Analysis 17 Comments 25, Views. The Ichimoku indicator is a potent trading tool, but many traders feel overwhelmed when looking at all the lines and information that the indicator gives them and then often misinterpret the Ichimoku signals.

In this article, we will dissect the tool and show you step by step how to use the Ichimoku indicator to make trading decisions. Those look like moving averages on your charts, but they are not as we will see. The Cloud is the most popular aspect of the indicator because it stands out the most. Please note that I am focusing on the momentum and trend-following aspects of the Ichimoku indicator for this article.

The lagging span of the Ichimoku is left out by choice since it does not add much value. We will now take a look at each component individually and then put it all together to help you find better trade signals. As I said earlier, that the Conversion and Base lines look like moving averages on your charts, but they do something different. The Conversion and the Base lines show the middle of the 9 and the 26 period high and low. This means that they look back 9 and 26 periods candles , take the highest and the lowest price levels during that period and then plot the line in the middle of that range.

In the screenshot below, the green and the red line are the Ichimoku Base and Conversion lines. The Conversion and Base lines have two purposes: Secondly, they provide momentum information. When price is trading above the two lines and when the Conversion line is above the Base line, it signals bullish momentum.

This is also very similar to moving averages: The Ichimoku Cloud is made up of a lower and an upper boundary and the space in between the two lines is then often shaded either green or red. The first and faster moving boundary of the Cloud is the average between the Conversion and the Base lines. The second, slower moving boundary is the middle between the 52 period high and low.

An important characteristic of the Cloud is that it is projected 26 periods into the future. Again, in the screenshot below we plotted two regular moving averages next to the Cloud and used an offset of 26 shift the moving averages into the future. You can see that the moving averages are almost identical to the Ichimoku Cloud.

Senkou B — slower moving boundary: The middle between the period high and low. The general idea behind the Cloud is very similar to the Conversion and Base lines since the two boundaries are based on the same premises. First, the Cloud acts as support and resistance and it also provides trend direction and momentum information.

But since the Cloud uses a 52 period component as opposed to 9 and 26 , it moves slower than the Conversion and Base lines. Basically, the Cloud confirms an uptrend when price is above the Cloud and a downtrend when price is below the Cloud.

The space within the Cloud is a noise zone and trading here should be avoided. A rally is reinforced when the Cloud is green and a strong downtrend is confirmed by a red Cloud. The Cloud, thus, is a way to trade with the longer term trend and we can sum up our findings as follow:.

Now that we have a solid understanding of what the individual components do and what their signals and meanings are, we can take a look at how to use the Ichimoku indicator to analyze price charts and produce trading signals.

With the help of the Ichimoku Cloud, traders can easily filter between longer term up and down trends. When price is below the Cloud, it reinforces the downtrend and vice versa. During strong trends, the Cloud also acts as support and resistance boundaries and you can see from the screenshot below how price kept rejecting the Cloud during the trend waves. Thus, the Cloud is ideal when it comes to filtering between bullish and bearish market phases. However, as most momentum indicators, the Ichimoku Cloud loses its validity during range markets.

The Conversion and Base lines are the fastest moving component of the Ichimoku indicator and they provide early momentum signals. In the screenshot below we marked different points with the numbers 1 to 4 and we will now go through them to understand how to use the Conversion and Base lines:.

At that time, price was also trading above both lines which confirms the bullishness. Price dipped back into the Cloud for a moment, but found support. This could have been seen as an entry. The Conversion and Base lines also crossed into a bearish setup, further confirming the momentum shift. Finally, price entered the Cloud validating the change. At the same time, price was trading below the Cloud. All those signals confirm a strong downtrend and could have been used as a sell entry.

Then, the Conversion and Base lines kept crossing each other, which further confirmed that momentum was shifting. Eventually, momentum died off and price consolidated sideways. We are all about generating confluence which means combining different trading tools and concepts to create a more robust trading method.

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Our preferred indicator is the RSI and it works together with the Ichimoku perfectly. The screenshot below shows that by adding the RSI and looking for RSI divergences, it is possible to identify high probability reversals. Just as moving averages, the Ichimoku indicator can also be used for your stop placement and trade exits. When exiting a trend-following trade based on the Ichimoku signals, there are a few things you should know:.

The conservative exit 1: A more conservative trader would exit his trades once the Conversion and Base lines cross into the opposite direction of the ongoing trend. Such a trader usually avoids a lot of the choppiness that exists before reversals happen. On the other hand, he might miss on future trend moves when price reverts back into the original direction; not all Conversion-Base line crosses lead to trend reversals.

The aggressive exit 2: A trader who wants to ride trends for a longer time exits his trade only once price breaks the Cloud into the opposite direction.

The advantage is that he can sometimes hold trend trades much longer and is not as vulnerable to temporary retracements. On the other hand, he might exit some of his trades too late and could end up giving back a substantial amount of his profits because the Cloud-cross usually happens very late.

Overall, the Ichimoku framework is a very solid, all-in-one indicator that provides a lot of information at once. As we have shown, there is no secret when it comes to using and interpreting the Ichimoku indicator and the individual components are very closely correlated to trading based off of moving averages.

Nevertheless, the Ichimoku indicator definitely has its place and traders who decide to follow such a trading strategy can create a robust framework. To sum it up, here are the most important things you have to know when it comes to trading with the Ichimoku indicator:. Thank the japanese for this powerful indicator. We have so much to learn from them in the field of technical analysis and trading in general. Not to mention being arguably the first country to kick-start the race to the bottom global currency war?

You are correct about the learning part though, in the case of Japan, learn exactly what not to do! I am big fan of Ichimoku and read and trade with that indicatior lot. Therefore, the indicator is applicable to all pairs and markets because it always adjusts based on the price action of the individual market.

Thank you for this wonderful piece on Ichimoku. May I seek your thoughts on the following: What exactly makes it not as valuable as the other components of the tool? Could it be used as, say, a confirmation whether to enter a trade? You can use the indicator on all timeframes. I always prefer the 4H, but those are all universal concepts.

I think the other components of the Ichimoku offer a lot of information and the lagging span did not add much value.

The rest should be more than sufficient. Any signal given is always VALID in the sense that it means something.

3 Profitable Ichimoku Trading Strategies - Tradinformed

But it may not be a STRONG indication of trend change. There are websites out there that rate the signals. The first is less bullish than the last.

Since the cloud is projected forward do I consider the forward cloud while making decisions on the current price or do I consider the cloud where the price is currently at.

Do I make a decision based on the forward cloud or the current one. Other websites discuss this.

Good article on Ichimoku. The Cloud seems very, very delayed to me. Furthermore, a breakout from a cloud is no more guaranteed to continue than a breakout from a moving average. So that gives you an idea of the delay involved. Rolf, for example, recommends using a 20 SMA to enter reversal trades. Hi guys, brilliant article. Big fan of all your stuff, well explained and to the point. Does the above work equally well on equity indices or commodities as compared to FX in your experience?

I have no experience with using it on single equities but it does also apply to commodities and indexes. For the RSI divergence u are plotting it over price action vs the RSI ,so why u said Ichimoku and RSI are best combination. As i can see we dont need Ichimoku here for the divergence. I just want to share different tools. Every trader prefers something else so my goal is it here to explain different tools and then let traders choose what they feel most comfortable with.

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The Complete Ichimoku Trading Guide — How To Use The Ichimoku Indicator Rolf Indicators , Technical Analysis 17 Comments 25, Views. Contents in this article First step: Forex Trading Academy Forex price action course Private forum Weekly setups Apply Here. Shravan Dharmaraj April 27, at 3: Xadiq May 17, at Rolf May 17, at Jack Reacher June 11, at 7: Evgeny June 24, at John October 16, at 3: Vimal July 20, at 8: John October 16, at 4: Rolf January 17, at 1: Gurwin February 4, at 1: Rolf February 4, at 2: Leave a Reply Cancel reply Your email address will not be published.

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