The right timing is always the key to a profitable trade. Making the right trade at the right time is what every forex trader hopes to be able to achieve that is why they go to all extent to develop technical models and market analytics to help them determine the perfect timing for their trades.
One such technical analysis method that has caught the fancy of many traders is the Ichimoku Kinko Hyo or the Ichimoku cloud. It is a trend following indicator that has been put to good use by traders not only in foreign currency trading but also in stocks, commodity futures, options, etc. This systematic analytical tool helps traders understand the market better and gives them a better grasp of the underlying sentiment of the majority of the traders trading at any particular time.
Knowing precisely when to enter or exit the market is what Ichimoku Kinko Hyo has to offer as technical analysis tool. It helps them pick the more profitable trading opportunities and keep them away from rash trading decisions which are often either too soon or too late. Ichimoku helps the traders take out the guess work in making trading decisions and deciding when and where to put their money on the line. It helps them discard the gambling instinct and trade more objectively instead of trading from gut feel.
One of the distinct advantages of using Ichimoku Kinko Hyo is its ability to help us see in to the future. Of course, this is sheer euphemism but the bottom line is this technical tool helps determine where future supports and resistances will be and therefore we shall have an objective basis to setting up our price action points for our trade. The best part is this tool presents the various trading opportunities in vividly graphic form which we will never miss even with a single glance. This means we should be able to recognize a profitable trading opportunity as it rears its head or recognize it immediately when the market turns against our positions.
The Ichimoku cloud system is a visual way of taking a snap shot of the market. It is a worthwhile and important analytical tool as it gives you an instant feel of the market and the underlying sentiment of majority of the traders during a particular trading session. It is a trend following indicator which means it is effective in a highly trending market but will soon lose its luster when the market moves sideways. And when the market goes sideways, the Ichimoku will tell you so, which means it is best to use another tool which is more effective for a sideways moving market.
The most effective way to use the Ichimoku Cloud is together with a trend indicator like the ADX. A sideways moving market will produce conflicting trading signals from any trend following indicator. With a trend indicator, you’d be able to know if the market is trending or not and therefore you’d be able to avoid getting whipsawed when the market moves sideways.