In the previous article, FXCE gave an overview of the components that make up the Ichimoku Cloud and the formula for calculating each line of the indicator. In the following post, we will continue providing details about trading methods with Ichimoku Cloud for traders who are interested in this indicator.

>> You can review previous articles and others at:

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What does the Ichimoku cloud show?

Ichimoku Cloud

Know the market trends

We can figure out which trend is going on based on the components of the Ichimoku Cloud. Specifically, if the price is above the Kijun-Sen, Tenkan-Sen or below the Chikou-Span line, it is an uptrend. Conversely, if the price is below the Kijun-Sen, Tenkan-Sen or above the Chikou-Span line, it signals a downtrend. Also, traders can predict the next price action based on the thickness and color of the Kumo cloud.

Identify the zone of support and resistance

One of the great functions of Ichimoku Cloud the key is to identify price support and resistance levels. More specifically, each component of the indicator can provide support and resistance levels, assisting traders in predicting future transactions.

Entry and exit signals

When the price is moving or breaks the cloud, the trader can enter a buy/sell order based on the crossover, the crossover between the baselines and the signal line.

Ichimoku Cloud Trading Methods

Let's recall the concept Ichimoku Cloud, they are made up of 5 lines: Kijun-Sen, Tenkan-Sen, Chikou-Span, Senkou-Span A and Senkou-Span B. In which two Senkou-Span lines A and B form a part with the same shape. cloud and has its own name, Kumo (or Kumo cloud). Here are some specific transaction situations with Ichimoku Cloud.

Trade when Senkou-Span A and Senkou-Span B lines intersect

As mentioned above, the two Senkou-Span lines A and B form a cloud named Kumo. In the composition of Ichimoku Cloud, it can be said that Kumo clouds are the most important and most visible component. Kumo clouds help traders identify price trends and reversal signals.

Senkou-Span A and Senkou-Span B lines in the Ichimoku cloud

We can determine the future trend through the position of the two Senkou-Span A and Senkou-Span B lines in the indicator Ichimoku Cloud:

• Senkou-Span A is above Senkou-Span B, indicating a future bullish trend.

• Senkou-Span A is below Senkou-Span B, indicating a future downtrend.

In addition, the two contours of the cloud (Senkou-Span A and B) also indicate the strength of the trend, specifically:

• When both the Senkou A and B lines are pointing up, the future Kumo cloud rises → signaling a strong price increase.

• When Senkou-Span A is up and Senkou-Span B is flat, future Kumo clouds rise → signaling a moderate price increase.

• When Senkou-Span A is pointing down and Senkou-Span B is moving sideways, a pullback or reversal may occur → signaling weak bullishness.

• When both Senkou A and B are pointing down, it shows that Kumo futures are falling → a strong bearish signal.

• When Senkou-Span A is pointing down and Senkou-Span B is flat, it shows decreasing future clouds → signaling a moderate decline in price.

• When Senkou-Span A is pointing up and Senkou-Span B is moving sideways, a strong pullback or reversal may occur → a weak bearish signal.

Trade when the Tenkan-Sen and Kijun-Sen lines cross

Kijun and Tenkan lines in the Ichimoku cloud

In the trading system Ichimoku Cloud, the two Tenkan and Kijun lines can be considered as two fast and slow-moving averages. Therefore, when combined, they form a strong support and resistance zone when the market is in a clear uptrend or downtrend. The trading strategy using the Tenkan and Kijun crosses is also known as the Tenkan-Kijun Cross (TK Cross) strategy.

In fact, the crossing of the Tenkan and Kijun lines is a common occurrence with the indicator Ichimoku Cloud so there are still some false signals being given. Therefore, to prevent this risk, most experienced traders recommend that only trade in the direction of the trend, which means:

• In case of an uptrend, we should wait for Tenkan-Sen to cross Kijun-Sen from the bottom, then enter a Buy order.

• In case of a downtrend, we should wait for Tenkan-Sen to cut the kijun-Sen from above before executing a Sell order.

Just like other trading strategies, the TK Cross strategy in the Ichimoku Cloud must also be considered in the big picture before making a trading decision. This strategy is divided into 3 main types: strong, medium, and weak.

• When TK Cross is strong: Buy when Tenkan crosses above Kijun and Kumo clouds. Sell ​​when the Tenkan crosses the Kijun below the Kumo cloud.

• When the TK Cross signal is average: Buy when the Tenkan crosses the Kijun inside the Kumo cloud. Sell ​​when Tenkan crosses the Kijun inside the Kumo cloud.

• When the TK Cross signal is weak: Buy when the Tenkan crosses the Kijun below the Kumo cloud. Sell ​​when the Tenkan crosses the Kijun above the Kumo cloud.

Trade when the Chikou-Span line intersects with the price line

The Chikou-Span Line in the Ichimoku Cloud

In dealing with Ichimoku Cloud, the price line and Chikou-Span line crossing also provide a potential signal. Similar to when the Kijun and Tenkan lines cross, Chikou's price line crossing is a frequent phenomenon, so traders need to combine more trend-strengthening signals to trade most effectively.

First, it is necessary to identify the ongoing trend. Next, the trader needs to identify the signal to execute the order:

• If the Chikou-Span line crosses the price line from the bottom providing a buy signal, then the Chikou line also moves away from the price line.

• If the Chikou-Span line crosses the price line from above providing a Sell signal, then the Chikou line moves away from the price line.

However, for the Chikou-Span line to work at its best, traders should use it in conjunction with other price action signals and technical indicators to increase the odds of successful trades.

Trading strategy mix

The Ichimoku Cloud

Although each component of Ichimoku Cloud has the ability as a stand-alone trading instrument. However, to trade most effectively and make the most of the benefits of Ichimoku Cloud, we also need to merge them. Here are some conditions for setting up a trade with Ichimoku Cloud. 

The Buy strategy will include the following elements:

• The price at the time of entry must be above Ichimoku Cloud, reinforcing the uptrend.

• Tenkan-Sen intersects Kijun-Sen from the bottom and the intersection is above Ichimoku Cloud.

• Senkou-Span A must be on top of Senkou-Span B.

• Chikou-Span is above the price line.

A Sell strategy will include the following elements:

• The price at the time of entry must be below Ichimoku Cloud, reinforcing the downtrend.

• Tenkan crosses Kijun from top to bottom and the crossover is below Ichimoku Cloud.

• Senkou-Span A must be below Senkou-Span B.

• Chikou-Span must be below the price line.

But the billion rate to the weak element of the concurrency will not be high, so traders need to flexibly apply each strategy without necessarily waiting for all of the above factors to execute orders.

Conclude

Hopefully, through the above information, traders will have a better understanding of the Ichimoku Cloud and how to deal with them. Nothing is absolute in the face of constant market fluctuations. Therefore, we need to combine more tools, always observe the market and apply personal knowledge and experience to the trading process to achieve the best efficiency.

Although it is an “all-in-one” indicator, Ichimoku cloud is not a perfect tool, so traders need to be careful and careful when using it. Let's look forward to other trading knowledge FXCE will introduce to traders through the next articles. 

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