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How Ichimoku Can Put The Trading Odds In Your Favor

How Ichimoku Can Put The Trading Odds In Your Favor

2013-07-09 03:00:00
Tyler Yell, CMT, Currency Strategist
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Article Summary: Traders often looking for the best trading signal on the internet rarely find exactly what their looking for. Eventually, greed settles and you begin to understand that in order to increase your odds in making money when trading, you need to find a good and decent system that helps you find unfolding trends with valid entry points.

"Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is always keep the odds in your favor."

  • Vic Sperandeo

Ichimoku is built on a simple premise that almost anyone can apply. The premise is that financial markets tend to trend. When trending upward, each push higher surpasses a previous high and during a downtrend a push lower likely surpasses a previous low.

The litmus test of every trade with Ichimoku is the Cloud and that is where you should start. When you see price is currently above the cloud on the time frame of your preference, you should be looking for pull backs or opportunities to enter in the direction of the uptrend. When price is currently below the cloud, then you can be looking for temporary increases in price to enter into the downtrend with a sell signal.

Putting Yourself in a Favorable Position with Dynamic Stops & Limits

Ichimoku starts off by doing you a service as a trader that we just discussed. This service of Ichimoku is in discouraging you from taking trades against the trend. Beyond the cloud, you must also have the lagging line, trigger & base line also agreeing with the move.

Learn Forex: The Ichimoku Indicator Keep Your Stops & Limits Respecting the Trend

Using_Ichimoku_To_Keep_Trading_Odds_In_Your_Favor_body_Picture_3.png, How Ichimoku Can Put The Trading Odds In Your Favor

Presented by FXCM’s Marketscope Charts

First, you decide whether you’re going to buy, sell, or sit aside until a clear signal is there. If you’ve made a trading decision, you can then place a relatively tight stop and limit in respect of the trend’s support or resistance so that if the trade doesn’t work out, you haven’t risked a large percent of your trading capital. Of additional benefit, your trading targets are clearly in the path of the trend’s strength and most trends will take the market to your target.

This dynamic keeps the odds in your favor because you’re trading in the direction of the trend with trend appropriate stops and limits. The other major thing that you have to focus on is your trade size.

Ichimoku Weekly Trade: Sell GBPAUD as GBPAUD Has Broken Through Critical Support

Using_Ichimoku_To_Keep_Trading_Odds_In_Your_Favor_body_Picture_2.png, How Ichimoku Can Put The Trading Odds In Your Favor

Presented by FXCM’s Marketscope Charts

Ichimoku Trade: Sell GBPAUD Based on Lagging Line Breaking Below Cloud

Stop: 1.6600 (Resistance with Top of Cloud)

Limit: 1.5900 (Profit Target Greater In Pips than Stop Exit & At Weekly S2 on Classic Pivot)

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

-Price is 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

-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 best used to spot good entries in the direction of a strong trend. On the chart above, the GBPAUD trend has shifted from a great buy trade to a potential reversal that we hope to catch with this trade. Because of the technical set-up and recent price action showing GBP weakness across the board, we’re happy to consider this trade with the stop above the cloud.

Happy Trading!

Prior Ichimoku Articles:

Joining Ichimoku with an Advanced Candlestick

2 Step Process for Entering a Conservative Trade 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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