Trade Plan: Ichimoku Clouds The Ichimoku Cloud chart indicator, also known as Ichimoku Kinko Hyo, is an indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals. Ichimoku Kinko Hyo translates into what is called a “one look equilibrium chart”. The indicator was developed by Goichi Hosoda, a journalist, and was published in his 1969 book. The Ichimoku indicator is a fairly complex indicator, and we will not go into a detailed explanation of this here, rather you may read the links in this blog to get the accurate definition of this indicator.
There have been many a trader that have built Trade Plans around the Ichimoku indicator, as it is full of lines and parameters, with many differing ways to interpret the indicator. Don’t let the complex lines on the chart fool or confuse you, and focus on the parts that can be best suited for your needs. Keep in mind that this still is a “price derived” indicator, which means to a large extent it is a lagging indicator. But combined with price movement, it maybe useful within in a Trade Plan construct. We will give you a suggested way to do this in this suggested Trade Plan.
Description: The idea of this Trade Plan is to look for a reversal or at least a moderate stall of a market trend that may be completing using the Ichimoku indicator. First we will visualize a long trend where the price has been supported by the Ichimoku clouds. A long trend would mean at least 40 bars. A change in trend is where price breaks into the support cloud. We will be trading the 1-hour charts (though other times can work as well) with the Ichimoku indicator set to its standard settings of, Tenkan-sen of 9, Kjun-sen of 26 and Senkou Span B of 52.
Trigger: The Trigger comprises of a break of price into the Ichimoku cloud support (by at least 50% of the cloud width), where before the price was totally supported by the cloud (i.e. price never went into the cloud). Then after cloud support has been violated, a rise/fall back in the trend direction occurs. The Trigger is then taken at the 50% mark between the last swing high/low and the edge of the cloud support.
Stop: The top/bottom of the last swing high/low.
Target: One to two times the stop amount. One may look at major support/resistance lines to refine this further.
Filter: Ensure a long trend has occurred where the trend has been supported by the Ichimoku cloud for at least 40 bars. Also, at the point in time of the trigger, ensure no major news release are about to take place.
Order Management: For entry, use limit orders and let the price fall into you.
Follow the short example in the thumbnail chart, but the opposite is true in the long case. Try this and please suggest improvements in the comments section below. Learn more in the Blue Point Trading Tool box. Click here, or watch below a video representation of this Trade Plan.
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