Hi Traders,
In this episode, our trader Rey will show you how to reference the Ichimoku indicator to use within your trading models.
Hope you enjoy this episode!
How to trade Ichimoku Strategies
Ichimoku Cloud trading is a strategy that utilizes multiple moving averages to identify support and resistance levels. The Ichimoku Cloud, or “Kumo” in Japanese, is a charting technique used by traders to determine support and resistance levels as well as the trend direction of a given asset. This strategy combines several momentum indicators to create an easy-to-read picture of the market’s sentiment.
The Ichimoku cloud consists of five components:
- Tenkan Sen (conversion line),
- Kijun Sen (base line)
- Senkou Span A (leading span A)
- Senkou Span B (leading span B)
- Chikou Span (lagging span).
The Tenkan Sen, also known as the conversion line, is a mid-term trend indicator. It is calculated by taking the average of the highest high and lowest low over the last nine periods. This helps identify short term trends and differentiate them from long term trends.
The Kijun Sen, or base line, is a longer-term indicator that measures the midpoint of a 26-period high and low. The Kijun Sen acts as an anchor point for most Ichimoku trading strategies as it helps to identify potential entry points in both trending and range bound markets.
The Senkou Span A (leading span A) and B (leading span B) are calculated by taking the average of the Tenkan Sen and Kijun Sen, then plotting them 26 periods in future. These two lines create a “cloud” which helps traders see where potential support and resistance levels may be found.
The Chikou Span is plotted 26 periods behind the current price and acts as a lagging indicator. This line helps to confirm signals generated by other Ichimoku components.
Ichimoku trading strategies can be used for both long-term investments and short-term trades, depending on how they are configured. Generally, traders will look for bullish or bearish crossovers between the Tenkan Sen and Kijun Sen to identify entry points along with confirmation from the other components. Additionally, traders may look for a break of either Senkou span to indicate a trend change.
The Ichimoku Cloud is a powerful tool that can be used to quickly identify and analyze trading opportunities. By combining several momentum indicators into one easy-to-read chart, it becomes easier to make buying and selling decisions with confidence. With practice, this strategy can be used in all types of markets to generate consistent profits over time.
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