Ichimoku is a complete technical trading system that has been used religiously by traders dating back to the indicators development in the 1930s. The basis of Ichimoku is two moving averages and a cloud to provide a clearer picture of potential price action. The main difference between how Ichimoku averages and western moving averages work is that Ichimoku is constructed using 50% point of the highs and lows as opposed to candle’s closing price.
The distinctive Ichimoku clouds allow us to gauge in glance the posture and affinity of future price action.
If you want a complete breakdown of the moving points of the indicator, they were described in this month’s first report. As a review, here is what to look for before entering the trade.
Ichimoku Trading Rules
When looking to enter into a trade, here are the entry rules I look to buy the pair. The opposite will apply for short trades:
-Price is above the Kumo Cloud
-The trigger line (Tenkan Sen) is above the base line (Kijun Sen) or has crossed above
-Chikou line is above price action from 26 periods ago
-Kumo ahead of price is bullish and rising (displayed as a blue cloud)
-Entry price is not more than 150 pips away from the Tenkan Sen / trigger line as it will likely whip back to the line if we enter on an extended move.
If you would like assistance with the right trade size for your account when a signal is generated, you can find an easy formula here.
When uncertainty rises, so does the Swiss Franc. Few things have brought as much uncertainty this month as the Fiscal Cliff which many fear could throw the US into another recession. Another thing favoring a stronger Franc is the currencies tie to the Euro. If the Euro rises on development of a plan for Greece’s funding issues, we could see a boost that would raise the CHF as the USD drops against opposing currencies.
The Ichimoku shows a strong case to sell as price moves back below the cloud. Price has been under the cloud dating back to late August for a majority of the time. We also see that the Tenkan Sen or Trigger which is tan is pending a cross below the Kijun Sen or base line which provides a selling signal.
The rejection of the up move in the middle of the cloud provides further confidence in this trade to sell in the direction of the overall trend.
Sell USDCHF @ Market
Stop @ 0.9460
Limit @ 0.9100
The Ichimoku indicator is famous for giving you one glance at whether or not there is equilibrium when viewing the chart at hand. When equilibrium is absent a trend trading opportunity is present. One of the stronger currencies over the last month has been the Australian Dollar. Consequently one of the weakest has been the Canadian Dollar when comparing its price to the 200 day moving average across multiple currency pairs.
Another distinguishing aspect of Ichimoku is the Chikou Span. Chikou Span is the teal line which is current price plotted back 26 periods. Historically, that was the number of trading days in a month. The purpose of this line is to give you a snap-shot of whether or not price is higher or lower today than it was 26 days or a month ago.
When the Chikou Span or lagging line is in undefended territory above the cloud, it is bullish for the currency pair. We see this exact set up on AUDCAD as current price and Chikou Span are above the cloud. The trigger line is also above the base line even the price tested and bounced off the base line last week.
Buy AUDCAD @ Market
Stop @ 1.0230
Limit @ 1.0685
Exotic Trade: SELL USDNOK
Recently, you were introduced into the exciting world of exotic Forex pairs and how to trade them with a steady hand. You will often find some of the better technical set ups in exotic pairs so they naturally belong in the article that gives you purely technical trading signals
The trigger line is pushing below the base line as break broke through the bottom of the cloud last week. We should expect some pull back of price but the down trend looks clear for another push toward the profit target. You can also hold on to this trade for positive rollover lover as discussed in the Carry Trade article.
Sell USDNOK @ Market
Stop Exit @ 5.7000
Target Profit @ 5.5150
Last Report’s Trades
Buy USDJPY: Limit Hit +200 Pips
Buy CHFJPY: Stop Hit -150 Pips
Sell USDSGD: Floating a -15 Pip Loss
---Written by Tyler Yell, Trading Instructor
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