Article Summary: Finding a great trading system is only half the battle. The other half is developing the discipline and patience to only take the most favorable trades according to your systems so you’re not chasing price action. Today you’ll learn how Ichimoku allows trends to stabilize before you enter so that you’re not entering a trade right before it corrects against you.
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
– Ed Seykota, Legendary Trend Trader
Most traders want to have a strategy that brings consistent results. However, if you speak to many traders, the one thing that is missing in their trading is consistency. This is shown by a great month followed by a poor month or a trader not feeling like she is getting a footing with her strategy.
Learn Forex: If you chased this GBPUSD move, you may have been on the wrong side of a correction
Presented by FXCM’s Marketscope Charts
Naturally, a lot of traders love the 24-hour nature of Forex trading and the big moves that news bring to this around-the-clock market. The problem with news events is that a big move doesn’t necessarily equal a high-probability opportunity and more often than not, you may find yourself in a rough position if you’re chasing a price move after it takes place only to have yourself holding a trade as it retraces against you. What this means is that you need a system or discipline to wait for the highest probability moves or in other words, you need to develop patience.
Developing Patience
The best analysis in the world won’t provide you the benefit you seek if you don’t have the discipline or patience to wait for the best set-ups. The problem that a lot of traders run into is that they would rather feel the action of being in a trade than wait for a great set-up that aligns with their strategy which is costly. Another problem that traders run into is not having a form of analysis that allows them to see when an appropriate time to enter a trade is present, even if the trend is clear.
Learn Forex: Ichimoku’s Cloud & Lagging Line Can Help You See Good Times to Enter
Presented by FXCM’s Marketscope Charts
One reason for Ichimoku’s popularity is the indicator’s ability to display the trend and opportunities of when to enter the trend. With Ichimoku’s multiple aspects for entering a trade, you’re encouraged to avoid counter trend moves with the cloud and wait for the confirmations of the trend with the lagging line and moving averages. This may mean that you miss out on some pips, but from my experience, trading is a game of determining which few set-ups are worth risking your trading capital on as opposed to giving everything that appears as a set-up access to your precious capital.
Ichimoku helps you find quality trades even if the quantity of total trades diminishes.
Ichimoku Weekly Trade: Sell EURJPY if Lagging Line Breaks Through the Cloud’s Support
Presented by FXCM’s Marketscope Charts
Ichimoku Trade: Sell EURJPY Based on Lagging Line Breaking Below Cloud
Stop: 1.3200 (Resistance with Top of Cloud)
Limit: 1.29250 (Profit Target Based on Retracement toward Prior Low)
If this is your first reading of the Ichimoku report, here is a recap of the traditional rules for a sell trade:
-Full Candle Bodies below the Kumo Cloud
-The trigger line (black) is below the base line (light blue) or is crossing below
-Lagging line is below price action from 26 periods ago – this is our trigger.
-Kumo ahead of price is bearish and falling (red cloud = bearish Kumo)
-Entry price is not more than 300 pips away from base line as it will likely whip back to the line if we enter on an extended move.
Ichimoku is a great tool to help you see when a trend is reversing based on when price and the lagging line break through the clod. On the chart above, the EURJPY trend has shifted from a great buy trade to a potential reversal that we hope to catch with this trade. Outside of Ichimoku, there is a price pattern call Bearish Three Drives that is always developing on this pair. However, trend reversals as displayed with Ichimoku are a riskier trade so it’s best to keep your stops rather tight in case the analysis is wrong.
Learn Forex: Bearish Three Drives Patterns is A Price Channel Running Out Of Steam
Presented by FXCM’s Marketscope Charts
Because of the technical set-up and recent price action showing a trendline break on the EURJPY, we’re happy to consider this trade with the stop above the cloud.
Happy Trading!
Prior Ichimoku Articles:
How Ichimoku Can Put the Trading Odds in Your Favor
Actively Managing Your Live Trading With Ichimoku
Avoid the Trading Trap of Fake Reversals with Ichimoku
--Written by Tyler Yell, Trading Instructor
To contact Tyler, email instructor@dailyfx.com.
To be added to Tyler’s e-mail distribution list, please click here.
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