How to use the Ichimoku Cloud indicator while trading?


As mentioned yesterday we will be going over Ichimoku Cloud trading structure, which does not need any extra pointers on the chart. This Ichimoku trading strategy is relevant for every trading instrument and timeframe.



Placing a trade when the price closes outside the cloud
This technique 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.

Sequence of Events
When analysing the price action for potential trade entries, we walked through the following sequence of events:

First, the price of Intel goes through the Tenkan Sen (red) and Kijun Sen (blue) in a bullish fashion. Although these indications are bullish, we still need extra approval 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 wait for the best strategy.

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.

So, What Happens Next?
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. 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 Ichimoku Cloud trading strategy could be effectively applied. Note that in the second case, the signal to exit the position wasn’t very strong, but should still be honoured.


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