How to Make Money Trading Ichimoku Cloud Charts

 How to Make Money Trading Ichimoku Cloud Charts: An Indepth Look

The Ichimoku Kinko Hyo that is widely known as the Ichimoku Cloud or Ichimoku indicator is a robust and omnifarious trading instrument that is rapidly gaining popularity among traders in the global economy. This Hirameki-ohiten was first introduced by Goichi Hosoda from Japan in the late 1930s and was intended to convey an all round perception of trends, forces in motion and potential reversal points by a mere look at it. Ichimoku Kinko Hyo is a name that can be roughly translated to ‘one look equilibrium chart,’ pointing to the fact that the system gives a rather broad and general view of the position of the prices.

Looking at the Parts of the Ichimuko Cloud

The Ichimoku system is composed of five main components, each serving a specific purpose in the analysis:The Ichimoku system is composed of five main components, each serving a specific purpose in the analysis:

Tenkan-sen (Conversion Line): 

This line is the nine periods moving average of the highest high and the lowest low of the period. Short-term momentum is given by it and this could be used also as a signal line for possible entries.

Kijun-sen (Base Line): 

Kijun-sen derived as the midpoint between the highest high and the lowest low of the past 26 periods used as a more extensive pattern of the market. Kijun-sen is the other popular indicator which is frequently applied in combination with the Tenkan-sen in order to create buy and sell signals.

Senkou Span A (Leading Span A): 

It is the midline of the Tenkan-sen and Kijun-sen plotted the same period in advance of the current period but 26 times removed. It creates one edge of the Ichimuko Cloud or popularly referred to as the Kumo.

Senkou Span B (Leading Span B): 

This line is also computed as the average of the highest high and the lowest low of the past 52 periods and is plotted 26 periods ahead and acts as the other edge of the Kumo.

Chikou Span (Lagging Span): 

This line is the closing price, lagged by 26 periods. It is for verification of tendencies and possible reversals based on the current price and its correlation to the historical data.

What is actually left in between Senkou Span A and Senkou Span B is called the Kumo or cloud. This paper has demonstrated that the thickness of the Kumo as well as the position of Span A with respect to Span B offers valuable information regarding the strength and aspirations of the market.

List of Advantages Associated with the Ichimoku System
Another strength of the Ichimuko Cloud is their capacity in conveying several formats of information on a single chart. This makes it easier for any trader to look at them, determine the direction, and momentum, or reversal from the same without having to look at other indicators. Some of the key benefits include:Some of the key benefits include:

Clear Trend Identification: 

Ichimuko cloud diagram of the current trend is conspicuous with all the five components lined up as a diagram. If the prices are above the cloud the trend will be indicated as bullish if the prices are below the cloud the trend will indicated as bearish. When the shape of cloud is flat or narrow it indicates that the market is weak or consolidating.

Dynamic Support and Resistance: 

The Kumo serves as an on-going support and resistance level. Also, here within an upward trend, it becomes a support while in a downward trend, it becomes a resistance level. The density of the cloud represents these levels of support and or resistance as they are.

Forward-Looking Analysis: 

Unlike many other indicators that rely strictly on past data as mentioned above, the Ichimoku Cloud has a predictive feature thru the Senkou Span A & B. This helps the trader to be in a position to know when the trend might be reversing so that one can act appropriately.

Momentum and Signal Generation: 

Momentum based signals are the result of the interaction between the Tenkan-sen and the Kijun-sen lines. When the Tenkan-sen crosses above the Kijun-sen a bullish signal is given while a bearish signal is given when the Tenkan-sen crosses below the Kijun-sen.

Here we shall look at how to trade with the Ichimoku Cloud Charts and how it can be used to formulate some of the trading strategies.
Ichimoku Cloud can be used for quite simple trend following setups as well as for a bit more complicated systems, where more than one time frame is used and other indicators are employed. Below are some popular strategies that traders use to make money with Ichimoku charts:Below are some popular strategies that traders use to make money with Ichimoku charts

Trend-Following Strategy

This is one of the simplest methods that anyone including a beginner trader and an expert trader can use. The concept is quite simple that one should trade direction based on the existing trend identified by the Ichimoku Cloud.

Entry Signal: 

Go long when the price is located above the cloud and the Tenkan-sen line goes above the Kijun-sen line. On the other, go short with a price below cloud, and when the Tenkan-sen line moves beneath the Kijun-sen line.
Exit Signal: Close out the position when there is a bearish crossover of the Tenkan-sen beneath the Kijun-sen for uptreon or a bearish crossover of the Tenkan-sen above the kijun-sen for shorts. In turn, you can use the opposite edge of the cloud as a stop loss level to fix the loss if it occurrs.
This strategy is effective in trending environments but it may generate fake signals in ranging or a noisy environment. It is also very important to make sure the market is actually following through on the higher low above the cloud by looking at the getting the thickness of the cloud as well as the positioning of the Chikou Span below price.

Breakout Strategy

The breakout strategy basically seeks to take advantage of large price fluctuations that occur in the wake of consolidation. Ichimuko cloud is specifically useful in identifying support and resistance levels, and therefore acts as a tool to identify future breakouts.

Entry Signal: Use a long signal when the price crossed the cloud above and closed above a recent high. Go short when when the price first pierces the lower cloud followed by being closed below a recent low.
Exit Signal: Get out of the trade once the price pull back to the cloud and closes, that could be a signal for a change in trend direction.
This pattern is even more useful when accompanied by volume bars or other tools that would help to predict the breakout’s power.

Multi-Time Frame Analysis

Indeed, one of the most effective ways of applying the Ichimoku Cloud is the Multi-Time Frame Analysis. Ichimoku Kumo System is a type of technical analysis strategy popular among the traders to get better idea about market and to know when to enter as well as when to exit the particular markets.

Higher Time Frame (HTF): First of as, examine the Ichimoku Cloud on a higher timeframe for instance the daily or weekly chart. This will enable you to see the major trend as well as the support and resistance level of the particular currency pair you will be trading on.
Lower Time Frame (LTF): After you have identified the trend on the HTF, move over to a lower time frame chart – like a 1-hour or 4-hour chart in order to get a better look at entries/exit points. One should also search for longer-term commitments between the HTF and LTF clouds in order to corroborate the trend.

Being able to look at multiple time frames, means that you can eliminate a lot of noise and concentrate on the most likely setups given the wider market environment.

Useful Advices On Trading with Ichimoku Cloud Charts
Fig 4:Ichimoku Cloud Although Ichimoku Clouds is a useful indicator, there is more to trading than chart analysis. Here are some practical tips to help you maximize your profits when using the Ichimoku system:Here are some practical tips to help you maximize your profits when using the Ichimoku system

Practice on a Demo Account:

 Trading with real money, use of the Ichimoku Cloud can be best practiced on a demo account for practice. This will enable you develop some working experience on the indicator and confidence on your trade strategies.

Combine with Other Indicators: 

Ichimoku Cloud as it is, is already a complete system but when used in conjunction with other indicators like moving averages or RSI or MACD, it is all the more powerful. This can help you confirm signals and eliminate some of the false signals out there, thus making you be on the lookout for real setups.

Stay Informed: You need to read news & events in the market that may affect the assets that you are involved in trading. Although Ichimoku Cloud is a strong base of technical analysis, the fundamental analysis helps to make the conclusions about the markets.

Use Risk Management: 

It is very wise to use good practices when it comes to risk management like setting stop loss and proper position sizing. Ichimoku Clouds may be used to determine potential entry and exit points but.trade management is crucial to avoiding loss of capital.

Be Patient: Ichimoku Cloud is a trend indicator which makes it most effective to be applied in trending markets. Never rush into a trade but wait until one gets clear indications to enter into a trade. There is always the temptation to start trading in the market on an impulse or half-baked research and analysis.

Conclusion
Ichimoku Kinko Hyo is an effective system of trading that is highly resistant to adverse strategies, and yields significant amounts of information. This is what makes this technique almost universal, for trading stocks, commodities, currencies, and any other financial markets. You can harness this strong tool, integrated in a proper trading plan and it will improve your probabilities to achieve in the financial markets.

Click Here To Download The Book