Watch our video on how to use the ichimoku cloud trading system.
If you are looking to learn the Ichimoku cloud trading system then our Ichimoku trading strategies for beginners video will help you to get started. This is a popular Japanese indicator that's incredibly powerful when stock trading. Watch our webinar above to get an in depth overview on how this trading indicator works. Read More
If you are looking to learn the Ichimoku cloud trading system then our Ichimoku trading strategies for beginners post will help you to get started. The Ichimoku cloud trading system is a unique and easy to use technical analysis indicator. Many traders and investors alike use it to day trade, swing trade, and invest.
The Ichimoku system quickly and easily shows support and resistance, displays a stocks momentum, identifies the direction of the trend and offers trading signals. We are huge fans of the this system and love to refer to it again and again.
Lets take a quick look at what makes up Ichimoku’s genetics.
The Ichimoku Cloud trading base 4 data plots are based on the average of the high and low over a specific period of time. These data plots are different for each line. Notice that the lines are similar to exponential moving average lines which traders also use to make trading decisions.
Watch our Ichimoku Trading Strategies for Beginners Video:
The Ichimoku Cloud trading system consists of five chart plot lines total:
Here’s a recent example of $AAPL:
Alright, let's keep it REALLY simple here and talk about how we identify the trend.
When price is above the cloud, the trend is up and it's ...ready for it? It's bullish! (for that specific time period chart – always refer to multiple charts for your desired time frame of trading!!) When it's below, its bearish and the trend is down. Sounds simple right?
Pay attention to when candlesticks charts are trading sideways inside the cloud. This means that the trend is undefined and neutral, and therefore potentially more risky. This could be consolidation, or setting up for a move above or below the cloud.
The two spans essentially create a red or green cloud, depending upon which span is on top and which span is on the bottom. Clouds also appear in the future on your charts, which give you an idea of future levels of support and resistance!
Different parts of the cloud show support and resistance areas. Support and resistance is key in trading. See the example of $AAPL again below:
Now lets look at a bearish chart example, $TEVA:
We haven’t discussed the Conversion line and Base line much yet. These two lines (Blue and Red, respectively) can help traders and investors find entries and exits while trading with the Ichimoku cloud trading system. They are important for figuring out momentum, and timing your trades.
It's always important to take note where we are in regard to the cloud location; especially when looking at the conversion-base line pair. The trading signals these lines give us will be reinforced if these lines are above or below the cloud. Take our swing trading course.
Look at the example of $AAPL. We have several Conversion line, Base line crossovers, also known as TK crossovers (Tenkan-sen and Kijun-sen crossover):
As you can see, we have 3 bullish TK crossovers, accompanied by Kumo breakouts (cloud breakouts where price busts through the cloud). These breakout Ichimoku trading signals were great trading signals and reinforced by the overall bullish cloud uptrend of $AAPL.
There were some neutral periods of consolidation, but not much creation of a red cloud. Note how the Conversion line acts as the first line of support, followed by the Base line.
Traders and investors use the TK lines to trade the momentum! Can you see how simple this system is to use and why it is so popular among our community!? Learn how to do support and resistance live in our trading rooms. Check out the trading service that we offer.
Lets summarize Bullish and Bearish signals in the Ichimoku cloud trading system:
How to trade Ichimoku Indicator:
We love the Ichimoku cloud trading system because its simple to use and fun. The ichimoku trading strategies indicator is an all in one indicator which produces concise trading signals. Traders using the system are going to be on the lookout for price to breakout of the cloud, break below the cloud, and looking closely at the conversion line and base lines location.
After you've defined the overall trend using the cloud, the next step is to find your entry. A lot of traders wait for a period of consolidation or a pull back to the cloud support to get the best entry. Once a good entry looks to be forming, a bullish TK crossover is a great trading signal some will use to take a long position.
On the other side, be on the lookout for a TK crossover to the downside if the consolidation or pull back period fails to hold. This shows the beginning of a potential trend reversal. Make sure to look into popular trading strategies such as gap and go techniques, dip buying strategies, and day trading options. Ichimoku can work as a complement to all types of trading strategies.
We will often use the Ichimoku cloud trading system with other indicators. You’ll notice one of our founders Tim Davis shares a lot of charts in our Facebook community. Tim has the Ichimoku cloud along with many other indicators he has found useful on his charts such as simple moving average lines, ema's, vwap, macd, and on balance volume.
The important thing with trading and investing is to find systems that work for YOU. Whenever trying out a new system be sure to use a simulated trading system to test out your new skills prior to trading with real money. As a rule we say “if you can’t make money in a simulation what makes you think you can make money in the real market?” We recommend TD Ameritrade's ThinkorSwim platform for simulated/paper trading. Or you can go with Webull if you're interested in free commissions and get a free share of a stock when you sign up!
As always, feel free to reach out to us if you have any questions, or just comment below. Thanks for reading and please share this Ichimoku trading strategies article below if you’ve found it useful!
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