Ichimoku Cloud Trading Strategy

Hughes Optioneering.

However, when used within some simple guidelines, the chikou span cross can be used as its own standalone trading strategy with very good success. An important element is also represented by the inclination of the Chikou Span at the time of the observation.

Ichimoku Kinko Hyo

Hughes Optioneering.

The default parameters of Ichimoku Cloud are 9, 26, 52, but these parameters are configurable based on the preferences of the trader. Since the Ichimoku Cloud provides a number of trend signals, some traders consider the Ichimoku Cloud the only technical indicator required on the chart. The Ichimoku Cloud indicator on first glance can feel overwhelming to traders not familiar with the indicator. This is a normal H1 chart showing the price action of LinkedIn during the month of September As you look at the chart, you may be thinking to yourself, the price action looks standard and nothing jumps out at you as out of the norm.

To the untrained eye, the indicator looks like total chaos on the chart, with lines crossing each other without any clear purpose or trajectory. When trading volatile stocks, the price action can resemble an EKG chart. I can assure you that the Ichimoku Cloud is the furthest thing from chaos and is quite easy to understand after you become accustomed to the settings.

To this point, in this article, we hope to improve your understanding of the indicator and provide a simple trading strategy you can apply to your trading toolkit. What do we see first? Just to reiterate a point made earlier in the article, each line is a moving average. Therefore, you should look at the Ichimoku Cloud indicator as five moving averages and nothing more.

If you are not familiar with moving averages, it is one of the easiest technical indicators to master, so no worries on that front. To further dive into the makeup of the Ichimoku Cloud, the below content outlines the moving averages and how the cloud is formed. So, after explaining the components of the Ichimoku Cloud, we hope things are a little clearer for you the reader! Well, not really, but things have to be a little involved if it is the only indicator required on the chart. Today we are going to discuss an Ichimoku Cloud trading system, which does not require any additional indicators on the chart.

This Ichimoku trading strategy is applicable for every trading instrument and timeframe. This method could also be coined the Ichimoku Breakout Trading Strategy. This is because the trade trigger occurs at the point the price breaks through the cloud.

First, you open your trade in the direction of the respective breakout and then hold the position until the security breaches the Kijun Sen blue line on a closing basis. To illustrate the breakout strategy, we will review a real-market example of Intel from September and October As you can see, early on in the price action was in a sideways channel.

Furthermore, the cloud itself was flat to down during this same time period. When analyzing the price action for potential trade entries, we walked through the following sequence of events:. Although these signals are bullish, we still need additional confirmation in order to take a long position.

Second , the price of Intel breaks through the cloud in a bullish fashion as well. We open a long position first green circle and hope for the best! Third , Intel had a few unsuccessful attempts to break the Kijun Sen blue , but lucky for us, the price never breaks on a closing basis and the upward trend remains intact.

Fourth , the price breaks the Kijun Sen in a bearish direction and closes below the Kijun Sen. This price action means we need to exit our position and begin seeking other opportunities.

In the next 4 hours, the price does another bullish break through the Tenkan Sen red and the Kijun Sen blue. At the same time, Intel also breaks the cloud in a bullish direction once again. Opportunity after opportunity — great! We take another long position based on the bullish price action.

On this run-up, Intel, unfortunately, broke the Kijun Sen blue on a closing basis; therefore, we exited our long position with a decent profit. These are two trading examples of how this strategy could be successfully implemented. Although the market continues to move in our favor after we exited the position, there are many cases where the sell signal could lead to further losses.

Therefore, the better alternative is to always follow your trading rules and exit your positions when required. Below you will see an image displaying the M10 chart of Apple Inc Similar to our earlier Intel example, Apple starts with sideways movement. The price has been range bound and the cloud has been flat — presenting no opportunities to open a position. In the last chart example, we provided examples of unsuccessful traders on purpose.

Being able to test your strategies will transform your trading. You will be able to choose the the best and most profitable strategies. Then trade with confidence, knowing that your strategy has performed well. The analysis on this page was carried out using a Tradinformed Backtest Model. These are an excellent way for traders to test their strategies. The models are created in Excel and allow you to test different markets, try different indicators and entry conditions.

To see the latest models check out the Tradinformed Shop. I tested the data from May to December The results of the three trading strategies are: All three of the trading strategies were profitable over the 22 year testing period. This is very encouraging because it shows that, over time, the Ichimoku can be useful in all market types.

The period between and was notable for big swings in forex valuation as the dollar alternately weakened and strengthened during the financial crisis. The strategy performs poorly during the period — mid Get a Tradinformed Backtest Model now and see how much better your trading can be. If you would like more information about the strategies you can watch the accompanying YouTube video: As the name suggests, the SuperTrend technical indicator helps to identify market trends.

My name is Mark Ursell, and I am a full-time individual trader and investor. I am continually working on developing new trading strategies and improving my existing strategies.

I have developed a series of Excel backtest models, and you can learn more about them on this site. Log in Remember me. Ichimoku Cloud The most unusual thing about the Ichimoku is the cloud. It is made by plotting the closing price 26 periods back.