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Ichimoku's Day Trading Strategy With The Primary Trend

Ichimoku's Day Trading Strategy With The Primary Trend

Tyler Yell, CMT, Currency Strategist

Article Summary: The concepts of Ichimoku can be applied across the board on all time frames. Short term traders can take the same rules and apply them to their time frame for holding a trade. However, there are two key aspects you should focus on with short term trading.

“If you’re going to panic, panic early.”

-Wall Street Proverb

Trading short term has many real benefits if you’re comfortable with the seemingly erratic moves. Ichimoku provides a guiding light on trading in the direction of the trend but when you go down to a shorter time frame, a few key aspects of Ichimoku become exceedingly important. Here is a breakdown on what to focus on when trading on a shorter term time-frame, like a 5-minute chart or one of its kin.

Trading In the Moment

Naturally, when trading with Ichimoku we advise that you always start with the cloud. The cloud has no mystic power that can predict what the market will do, but rather works to keep the odds in your favor by trading with a perception that the trend will most likely continue. Trend continuation is the most likely while never guaranteed outcome of the markets.

The Lagging Line & Base Line

Beyond the cloud, the two key aspects of Ichimoku you can focus on are the lagging line and the base line. The lagging line is seen as our momentum indicator and when the lagging line breaks upward or downward, we have confirmation to join the day’s trend. The base line is the longer term moving average and a crossover of price in the direction of the overall trend is a strong confirmation of trend continuation.

The lagging line acting as a momentum indicator is often a novel thought. However, momentum is simply a tool to tell us if the current moves is likely, while not guaranteed, to continue. When the lagging line confirms the trade by breaking through the cloud or price as resistance, which is often a good time to enter a trade with appropriate risk management.

Learn Forex: Short Term USDJPY with Lagging Line Confirmation

Ichimoku's Day Trading Strategy With The Primary Trend

Chart Created by Tyler Yell, CMT

When the lagging line breaks out, it will often do so by entering into “open space”. Simply put, open space means that in a downtrend, there is nothing supporting price and it will likely continue to fall until selling pressure lets off the gas. In an uptrend, the lagging line breaking to the upside shows no resistance and you can ride the trend until buying pressure is exhausted which can be seen by the lagging line moving to the other side of the cloud.

Learn Forex: Lagging Line Day Trade Higher Shows Exhaustion / Exit When Lagging Line Flips

Ichimoku's Day Trading Strategy With The Primary Trend

Chart Created by Tyler Yell, CMT

Did You Miss The Initial Blast Off?

If you missed moment when the lagging line breaks out in the direction of the trend, hope is not lost. You can simply wait for price to come back to the base line and then push back in the direction of the trend. If you’re not sure how to identify a signal once price comes back to the signal line, you can look to a candlestick signal that is showing continuation.

Learn Forex: Wait for the Market to Show You the Trend Is Continuing With A Baseline Cross

Ichimoku's Day Trading Strategy With The Primary Trend

Chart Created by Tyler Yell, CMT

Ichimoku Weekly Trade: Buy NZDJPY if Price Breaks Above the Base Line Showing Continuation

Ichimoku's Day Trading Strategy With The Primary Trend

Chart Created by Tyler Yell, CMT

Ichimoku Trade: Buy NZDJPY If Price Breaks Through the Base Line at 79.35 To The Upside

Stop: 78.35 (Support with Bottom of Cloud)

Limit: 83.50 (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 buy trade:

-Full Candle Bodies above the Kumo Cloud

-The trigger line (black) is above the base line (light blue) or is crossing below

-Lagging line is above price action from 26 periods ago.

-Kumo ahead of price is bullish and rising (blue cloud = bullish Kumo)

Ichimoku is a dynamic tool that can be used on multiple time frames effectively. Regardless of the time frame, Ichimoku can help you see when a trend is likely to continue and help you recognize a good price to enter based on when price and the lagging line break through the cloud or price crosses the base line. On the chart above, the NZDJPY trend is looking for some support and if the trend continues we can benefit from a great buy trade at a good price in relation to our risk levels.

Happy Trading!

Prior Ichimoku Articles:

How You Can Build Patience and Discipline with Ichimoku

How Ichimoku Can Put the Trading Odds in Your Favor

Actively Managing Your Live Trading With Ichimoku

--Written by Tyler Yell, Trading Instructor

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