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Timing Trades with the Ichimoku Future Cloud

Timing Trades with the Ichimoku Future Cloud

Tyler Yell, CMT, Currency Strategist


Article Summary: Some currency pairs have calmed down while a few trends kept roaring. One of the latter is the EURCAD. We’ll take a look at the EURCAD trade opportunity as well as how you should react when you notice the future cloud crossing over.

Like many technical trading strategies, Ichimoku provides a plan to confirm your trade before entry. Confirmation meaning that there is no such thing as a sure fire trade but there is a higher probability trade depending on how many things you can verify before entering a trade. Ichimoku is an indicator and strategy that has multiple points of verification before entering a trade making it a higher probability indicator by nature.

One of the primary key points of verification is price in relation to the cloud. When price is below the cloud, you should be looking for a good place to enter a sell trade. When price is above the cloud, you should be looking for a good place to enter a buy trade.

Learn Forex: The Cloud Displayed In Rising & Falling Markets

The cloud is made up of two specific midpoints that together help you very clearly identify the current trend and trade opportunities. The orange line is the midpoint between the trigger and base line and the dark blue line is the midpoint over the last 52 periods. The cloud is formed by filling the gap between the two lines with a distinct color for rising or falling markets.

There are two components of clouds at all times on any given chart that you should be aware. There is the cloud as it relates to current price where traders often place stops or look for reentries in the direction of the trend. There is also the future cloud which is the cloud 26 bars into the future.

Approaching Cloud Crossovers

A unique aspect of the cloud is that it is pushed forward 26 periods from the current candle. This helps you gauge future feeling about a currency pair or tradable instrument. When you notice both lines in the future cloud are pointing in one direction, you have a strong validation of the direction in which price should continue.

When the future cloud is not clear or the lines that make up the future cloud are heading in opposing directions the sentiment is not clear. When feeling about one direction starts fading then a range can develop or a major trend reversal could be developing. This would not be an ideal time to enter the trade and it is recommended you give up a few pips and wait for continuation of the trend before you jump into the trade with defined risk.

Learn Forex: The Future Cloud Can Help You Time Entries

Ichimoku Weekly Trade: Buy EURCAD Off Of Bounce of the Base Line to the Upside

Stop: 1.3300 (below double bottom and test of the base line)

Limit: 1.4150 (as of current price, this target is roughly 2 times our risk and is in the trend’s path)

If this is your first reading of the Ichimoku report, here is a recap of the Ichimoku rules for a buy trade:

-Price is above the Kumo Cloud

-The trigger line (black line on my chart) is above the base line (baby blue line) or has crossed above

- Lagging line is above price action from 26 periods ago

-Future cloud ahead of price is bullish and rising (displayed as a blue cloud)

When utilizing Ichimoku to spot good entries in the direction of the trend, bounces off the base line while honoring the other rules can show a strong trend as we see with EURCAD. The reason the tighter stop is that the clear trend allows us to not give up as much downside risk as we look to ride the trend out. This is why you can set your exit as close as reasonably possible to our stop at the double bottom and base line test.

Happy Trading!

---Written by Tyler Yell, Trading Instructor

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.