The Ichimoku Kinko Hyo is an indicator used in various forms of trading, including stocks, cryptocurrencies, and forex trading. Specifically, it is used in strategies that adopt the principles of technical analysis. It is used to examine trends in trading and predict future points of support and resistance. The strategy was created by a Japanese newspaper writer who combined multiple trading strategies into a single chart. It is intended to help investors determine the most appropriate times to enter and exit the market.
These days, the strategy is most popular with forex trading—the exchange of foreign currencies. As this is the largest and potentially most profitable market in the world, there is little wonder that legions of new traders are drawn to it everyday. Motivations range from those looking for a hobby to those aspiring to be self-sufficient traders. To determine the best way to use Ichimoku, it’s important to understand some basic types of trading and how Ichimoku can be incorporated.
Trade strategies
Day trading is a short term trading strategy that is becoming more and more popular because of its daily win rate. An advantage of this style of trading is that it doesn’t require much capital to start, but it can be slow going, as it typically involves making small trades. It also needs to be treated as a full-time job, which can make it a particularly unfriendly option for new traders. While Ichimoku can be used in short term trading, it’s difficult to take full advantage of it within a daily time frame.
Position trading is a long-term option that focuses on holding positions for multiple weeks, or even months, at a time. This strategy tends to ignore daily or weekly trends in favor of studying longer market developments. It requires a great deal of discipline and planning, and it misses out on the advantages of the Ichimoku strategy’s shorter term predictions.
Most agree that swing trading is the most ideal approach for the Ichimoku strategy. This is a medium-term strategy that generally involves studying market patterns for around a week—perfect for Ichimoku. The general idea is to begin riding an upward trend from the beginning and predict when it will hit its peak before selling.
Understanding Ichimoku
To have your best chance at successful swing trades, you’ll need to know how to interpret ichimoku cloud. The Ichimoku Kinko Hyo is a chart consisting of five lines, each of which represents a market trend. The conversion line tracks the midpoint price range of the past nine market days. Each day is represented by a “candlestick” (bar) on the chart. The baseline tracks the midpoint price range of the past 26 days. Examining each of these lines will reveal market trends in both the short and long term.
The leading and lagging span lines track prices at their highest and lowest points, respectively. The “Ichimoku cloud” is a highlighted area of the chart that plots multiple price averages based on all of this information. When prices go above the cloud, this is considered a “bullish” trend, and when they fall below the cloud, it is considered a “bearish” trend. This allows a trader to take a single glance at the chart to determine if the market is fluctuating positively or negatively, hence the chart’s name.
The chart can seem complex to new traders, but it is designed to help traders quickly identify bullish trends so they can take full advantage of them from the beginning.
