A Summary of the Ichimoku Signals

Jul 24 • Forex Indicators, Forex Trading Articles • 1980 Views • Comments Off on A Summary of the Ichimoku Signals

The Ichimoku indicator is made up of five indicator lines and a cloud. Trading signals are generated according the position of price movements relative to the Ichimoku lines and the cloud as well as when Ichimoku lines crosses over each other. It may appear to be a bit complicated at the start but once you have a grasp of it, you will be able to identify trading opportunities even as they are just starting to appear.

To help you out understand better the implications of the Ichimoku indicators to your forex trading adventure, here is a graphical summary of the various Ichimoku signals and the underlying market sentiment they represent.

Ichimoku Line Reference/ Cross over Indication
Kumo (the cloud) Price
  • If price is moving up and down within the cloud, there’s no significant trend in the market.
  • If movement of the price above the “cloud”, both Senkou span A & B act as support lines.
  • If price is moving below the “cloud”, then both Senkou span A & B act as resistance lines.
Chikou span Price
  • A signal to buy is generated if Chikou span passes the price from below.
  • A signal to sell is generated if Chikou span passes the price from above.
Kijun-sen Price
  • The price is likely to continue its current trend if it remains on top of the kijun sen.
  • A trend change is likely to happen if the price line passes the kijun sen.
Tenkan-sen Itself
  • A bullish trend is indicated by a rising Tenkan-sen line.
  • A bearish trend is indicated by a falling Tenkan-sen line.
  • The market is not trending if the Tenkan-sen line is flat.
Tenkan-sen kijun sen line
  • A signal to buy is generated once the Tenkan-sen line gets across the Kijun-sen line from below.
  • A signal to sell is generated once the Tenkan-sen line crosses over the Kijun-sen line from above.

 

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Given the above knowledge a typical trading strategy using the Ichimoku Indicator will look something like this:

  • Enter the market long if 1) the price clears the top of the cloud and closes above it; 2) The Tenkan-sen crosses atop the Kijun-sen line; 3) Chikou span is trending upwards and is over the price line; 4) Senkou span A crosses above Senkou span B.
  • Enter the market short if 1) the price clears the bottom of the cloud and closes below it; 2) The tankan sen line crosses the Kijun sen line from above; 3) The Chikou span trends downwards and under the price line; 4) The Senkou span A crosses below Senkou span B from above.
  • An exit strategy can be set using a pre determined trailing stop or determined by the crossover of the Kijun-sen and Tenkan-sen in the opposite direction.

You need to keep in mind that the Chikou span, basically, is a momentum indicator. Use it therefore to your advantage by determining the market direction it points to and favoring a trading bias in the same direction.

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