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Trading With Clouds

Trading With Clouds

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Published by Aklchan

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Published by: Aklchan on Aug 28, 2012
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12/28/2012

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Trading with Clouds
Trading with Clouds
The Art of Ichimoku
By James Stanley
Trading CoachDailyFX EDU
instructor@dailyfx.com
“This information is provided to you for educational purposes only. This
article does not suggest that you will experience similar profitable trades as the ones illustrated. Currency 
trading involves significant risk of loss.” 
 
 
 
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Trading with Clouds
Origins
 
The fact that I can be trading at my home in Dallas, TX
 –
where I can see, interpret, andact on the same signal that a trader from Shanghai, or Sydney had also identified - playsdirectly to the self-
fulfilling prophecy of Technical Analysis. It’s almost as if it’s a
language that, once learned, can whisper potential trade ideas in the trade
r’s ear.
However
 –
in practice
 –
traders will often learn that the benefits of Technical Analysis
aren’t in the ‘secret messages,’ that may or may not exist in markets; but the fact that it
can help point to potential opportunities.Many traders find a combination of indicators that they feel really strongly about; spendhours upon hours practicing, and manually back-testing (testing the way that thestrategy would have worked on charts that had already taken place) to ensure they canget the advantage they are looking for. Even then
 –
principals of trade, risk, and moneymanagement are of the upmost importance. Most traders will find that negligence inany of these elements is akin to stuffing your money down a garbage disposal, even if trading with a strong technical strategy.A system that has recently gained popularity in the United States -
and has the ‘pizzazz,’
of potential for being a self-fulfilling prophecy; while at the same time offering a strongtechnical infrastructure rooted on sound fundamental trading theory is Ichimoku
(pronounced “Each
-E-Mo-
Ku”).
Ichimoku is a trading system that was originally developed by Japanese journalist Goichi
Hosada as he was looking to develop ‘The Ultimate Indicator,’ that could prov
ide a
multitude of analysis with a very quick glance. As a matter of fact, the term ‘Ichimoku,’literally means ‘one glance,’ in Japanese. Ichimoku is considered to be a self 
-containedsystem in the fact that no additional indicators are necessary
 –
everything is includedthat most traders will need to make trading decisions.Ichimoku is widely traded and followed throughout Japanese trading rooms
 –
lendingmany to the idea that the unique ways of identifying support and resistance can makethe system more compelling for Yen pairs such as GBP/JPY, EUR/JPY, and USD/JPY.There are quite a few components of Ichimoku
 –
and it can make a chart look quite
busy. Let’s start learning about this indicator by going right for the core of what makes
Ichimoku tick.
 
 
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Trading with Clouds
Trigger the Base-Line
At the very center of Ichimoku are the Tenkan-Sen and Kijun-Sen lines (referred here-on-out as Tenkan and Kijun respectively.) These two lines are the center of theIchimoku system
 –
 
and can be looked at as the ‘trigger,’ that
denotes bullishness orbearishness.Tenkan and Kijun are really just moving averages. They differ slightly from standard
moving averages in that they consider the ‘Average price,’ of each candle versus only
the closing price (such as a simple or exponential moving average generally will). Thiscauses the line to appear jagged (as opposed to the smoothing effect of a MovingAverage calculated on close.)Tenkan is commonly the first input that the trader sees when applying Ichimoku to achart. This is a 9 period Moving Average, and we can consider this the TRIGGER LINE of the system
 –
as this is where all of the action behind Ichimoku is taking place. I makethis line Lime Green when applying Ichimoku
 –
so that it stands out and is very clearwhen a crossover takes place.Kijun is commonly the second input that is used
 –
and this is a 26 period MovingAverage (also exponential, calculated on average price). We can consider this as theBASE LINE.

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