Ichimoku Kinko Hyo Forex Trading Strategies

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The Kumo cloud is a flagship component of the Ichimoku Kinko Hyo trading indicator. In this EURUSD Daily chart below, it is painted across the screen as orange and blue “clouds”. We will discuss how this one simple indicator can offer deep insight and generate trading signals for many professional forex traders.

Classic Support and Resistance
When prices are below the cloud, it serves as resistance as seen from the red downward arrows. Conversely, when prices are above the cloud, it serves as support, as indicated by the green upward arrows. This is possibly the easiest way to identify support and resistance levels, especially on trending movements.
Breaking Support or Resistance
A well-known break out trading strategy used by many traders is called the Kumo Break; this happens when prices successfully break out of the cloud. In the example above, there was a Kumo Break upwards, breaking the resistance indicated by the second red arrow from the left.
Stop Loss and Take Profit Levels
For the Kumo Break trade entry discussed above, traders can use the Kumo cloud as a trailing stop loss, since the cloud serves as a support below price. Traders can utilize “Kumo Shadows” for take profit levels. Kumo shadows are historical clouds behind prices, hence the term shadow. The flat portions of the historical Kumo shadows can be extended to the right to form take profit levels, as indicated by the green horizontal line extensions.
Forward-looking Price Action
One beautiful feature of the Kumo cloud is that it is painted 26 periods ahead of current price. So you have insight into future support and resistance levels. Not only that, you can gather an impression whether future price action is going to be bullish or bearish. Let’s take a look at this USDJPY Daily chart:

The current price bar is indicated with a red vertical line. Notice the Kumo clouds drawn ahead 26 periods into the future. It looks very likely that price is going to break above the cloud, suggesting a bullish environment, with the cloud offering support as indicated with the green upward arrow.
Equilibrium Level
However, note the flat orange cloud top ahead, known as the Senkou Span B. This is the median price level for the past 52 periods, which is an equilibrium price level. In other words, prices tend to be drawn back near to their equilibrium, often accompanied with a flat Kumo top. While we establish a high probability bullish continuation, traders can wait for a retracement towards the Kumo top before entering a long trade.
Useful Trading Indicator
You can see that the simple Kumo cloud can be a great companion for any trader. It will also be interesting to study Kumo clouds on multi timeframes.


Author Bio: Streetpips.com scans books and websites for trading strategy ideas. We then select those which are programmable, code them, and share these with our members.

 

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Trading Ranges with Candlestick Patterns

In the following daily USDJPY chart, we see the Ichimoku indicator accompanied by Candlestick Patterns. Prices have been consolidating sideways, as we see thin and twisting Kumo clouds. Such ranging markets are uncertain for Ichimoku traders, but with the help of Candlestick price action patterns, profits can still be found.

USDJPY Daily Chart from Bloomberg

We draw your attention to the Candlestick patterns:

Shaded green, Bullish Hammer (H): Lower shadow tends to be at least twice the length of the real body which should be at the top of candle. Bullish reversal when found in a downtrend.
Shaded red, Bearish Engulfing Line (EL): Second real body (open & close) engulfs prior session’s real body. Second candle must be black for bearish engulfing.

Note how the bullish Hammer signalled a bullish reversal in the middle of June 2013, and the bearish engulfing line triggering a bearish reversal in the middle of July. This is an example of how candlesticks price action can navigate Ichimoku analysis.

USDJPY prices seem uncertain at the moment, so trend followers will look for more clarity from the future Kumo clouds – whether they begin to slope up or down. With the Tenkan Sen (green line) below the Kijun Sen (red line), sentiment remains bearish.

Author Bio: Streetpips.com scans books and websites for trading strategy ideas. We then select those which are programmable, code them, and share these with our members.