So you want the best easy trading system indicator? Therefore, have you heard of the Ichimoku cloud? Itchy what? My first thought, is it some sort of weird itching disease?
And, what’s this could all about? Someone, please help me; this trading jargon is going to put me over the edge. Well, it’s not a far stretch as there are some days in which I feel I’m close, but that’s for another blog post.
For today, my goal is to keep you off the edge or at least provide you with the parachute if you decide to jump.
Best Easy Trading System Indicator
- We're all looking for that edge as a trader. Therefore, is there a best easy trading system indicator? Yes! Although, at first glance it may not appear that way. You may look at the Ichimoku cloud and be like huh?! Never fear, however. We're here to show you how to use the best easy trading system indicator to put your trading over the edge.
1. Understanding the Cloud Is Simpler Than You Think
First things first, if we want to understand the best easy trading system indicator, we need to break apart the cloud; and it’s not as complicated as you may think.
In fact, those traders with a grasp of basic charts and indicators often find it easy to understand the cloud. For those of you new to trading, candlesticks and charts, that’s okay as well.
I strongly urge you to read our free candlestick eBook and head on over to our website where we have tons of material to get you started.
Mr. Hosoda, I commend you. For those of you who don’t know who he is, he developed the Ichimoku cloud in the 1960's. Even though it looks complicated at first glance, in reality, it's quite simple.
At last count, I counted 69 technical indicators. Instead of having ten different indicators clogging your charts and decision making, he combined them into one, nicely formed cloud. Minimalists rejoice.
Think of the Ichimoku Cloud as a collection of technical indicators. And no, it’s not all 69 indicators combined into one cloud, that would be a messy cloud, but merely a select few.
Connected these indicators show support and resistance, momentum as well as trend direction. Surprisingly, it provides more data points than the standard candlestick chart's we tend to use.
I don’t know about you, but sometimes I struggle with where to put my support and resistance lines depending on the time frame I choose. One minute, 5 minutes, 15 minutes, six months or 1 year, the levels all look different as well as the trend direction.
So far, this “cloud” is sounding pretty amazing to me! What’s more, this “cloud” attempt to forecast future price and support levels. Ok, I’m sold.
2. Breaking Down the Cloud
The cloud indicator has five main components that provide you with reliable trade signals:
- Tenkan-Sen or Conversion Line. It represents the midpoint of the last nine candlesticks.
- Kijun-Sen or Base Line. It represents the midpoint of the last 26 candlesticks.
- Chiou or Lagging Span. As the name suggests, it is plotted 26 periods back and lags behind the price.
- Senkou Span or Leading Span A. This is is the midpoint between the Conversion Line and the Baseline. It's one of the two Cloud boundaries. Since it is plotted 26 periods into the future, it's the faster of the two cloud boundaries.
- Senkou Span or Leading Span B. This is the midpoint of the last 52 price bars. It's the second and slower Cloud boundary because it is plotted 52 periods into the future.
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3. Reading the Best Easy Trading System Indicator
Even though the Ichimoku Cloud indicator has five different lines, reading it is surprisingly quite simple. Once all the math is done, luckily not by me or you, with Leading Span A and B indicated, the "cloud" is shaded in.
All you need to do is figure out whether Leading Span A or Leading Span B is currently higher. The cloud will be green if Leading Span A is above Leading Span V.
In other words, the underlying asset is moving up with price momentum increasing. On the other hand, the cloud is red when Leading Span A is below Leading Span B.
This means the underlying asset is moving down with a corresponding decrease in momentum.
Despite the complicated names and definition, merely glancing at the colors of the cloud can help you determine the direction of the market.
That's what makes the Ichimoku cloud the best easy trading system indicator. You can see trend at a glance.
What Is the Best Trading Indicator?
- With so many indicators out there what the best easy trading system indicator?
- Moving Averages
- Ichimoku Cloud
- Bollinger Bands
1. What Does the Ichimoku Cloud Tell You?
Trends. Firstly, when the price is above the cloud, the trend is up. Secondly, when the price is below the cloud, the price is down. And finally, when the price is in the cloud we’re trading sideways or trendless.
Different colors in the cloud represent trends. An uptrend is typically colored green, and this happens when Leading span A is rising, and above Leading Span B. However, when A is falling below B, a downturn is confirmed and colored in red.
Support and Resistance. Many other technical indicators cannot project future support and resistance levels. The ability to not only set support and resistance in real-time but for the future is where, in my opinion, the Ichimoku Cloud shines.
We all want to make money trading right? The best easy trading system indicator gives you an edge over a trader who doesn't use it.
2. How to Use the Best Easy Trading System Indicator
If I can give you one piece of advice, it is this: don’t use the cloud alone. I think I’m starting to sound like a public service announcement, apologies if that’s the case.
For example, during a dominant downtrend, the price may push into the cloud or slightly above it, temporarily, before falling again.
Only focusing on the indicator would mean missing the bigger picture that the price was under intense longer-term selling pressure.
A standard indicator combined with the cloud and one that I use on my charts is the relative strength index (RSI). I like to use RSI to confirm momentum in either the up or down direction.
Sometimes in a powerful downward trend, the price might temporarily push up before falling again. Say if you just used the cloud alone as your indicator.
You may see price push into the cloud or slightly above and misinterpret this as a buy sign. Only to see it fall out of the cloud.
By not having the RSI indicator, you wouldn’t notice the extreme overbought condition and miss the fact that the stock was under long-term selling pressure.
Many traders who use the cloud watch for crossovers as a signal. A powerful buy signal is when the conversion line moves above the baseline. And this signal is even more powerful when the price is above the cloud. Similarly, use a fall below the baseline as an exit signal
For traders who want to maximize their profits - well who doesn’t?, I strongly urge you to combine the cloud with a few of the 60 or so other indicators out there.
3. Limitations of the Ichimoku Cloud
Clutter. The indicator can make a chart look busy with all the lines. To remedy this, you can hide all the lines except for Leading Span A and B, which create the cloud. Each trader needs to focus on which lines provide the most information. Figure that out and hide the rest if they distract you.
Predictability. Even though I applauded the clouds ability to “predict” future prices it somewhat doesn’t. That is because the Ichimoku Cloud uses historical averages to extrapolate to the future. If we had that crystal ball, we all wouldn’t be here reading my blog posts. We’d be all on that beach in Bali sipping mojito's. Nonetheless, history has a tendency to repeat itself, which is why I put some faith in the clouds prediction.
Irrelevancy. Over long periods the cloud can become irrelevant, especially if the price remains way above or below it. In cases like this, The cloud can also become irrelevant for long periods, as the price remains way above or below it. At times like these, pay attention to the conversion line, baseline, and their crossovers because they stick closer to the price.
4. Key Take Aways
- The Ichimoku Cloud is made up of five lines or calculations.
- If the price is above the Cloud, the trend is bullish.
- If the price is below the Cloud, the trend is bearish.
- The trend is consolidating or ranging when the price is in the middle of the cloud.
- Don't use the cloud alone
Wrapping It Up
There’s no reason why you cannot be making money in the stock market with the best easy trading system indicator. You can become an expert through enough practice, whatever your starting point.
Think of Bullish Bears as your parachute. By providing you with the proper tools, knowledge and education, we'll help to catch you when you fall.