When it comes to trading strategies for the stock market, most either have a self-explanatory title that give you an idea of what you will be doing when you are trading stock or are relatively easy to pick up on, even if you are not sure of what the strategy will entail based on the title. When it comes to the Ichimoku trading strategy, however, there is no clear indication in the title and taking a look over the actual outline can be more than difficult for the new trader. For those who are attempting to learn the Ichimoku trading strategy but who need a little more help, let’s take an in-depth look at what it is and what it entails.
What is the Ichimoku trading strategy? (Ichimoku Cloud)
The Ichimoku Cloud, which is the name of the indicator that helps you to analyze the data found in price charts, is a chart that utilizes five different calculations in order to produce a cloud constructed by two of the averages. In summary, the cloud that is produced on the chart is indicative of what trend the trading of an asset is following. It provides support and resistance during trends, and it lets the trader know when they should not be trading, which occurs when any of the current asset indicators fall into the cloud that was produced. To further break this down, let’s take a look at each of the indicators.
- The Tenkan Sen: The Tenkan Sen is a red line on the chart that shows the moving average, which shows the trader the overall middle value based on the highest and the lowest points on an asset’s chart over the last nine periods.
- The Kijun Sen: The Kijun Sen is a blue line that is representative of the moving average and functions much like the Tenkan Sen but tracks 26 periods. This line is typically lower than the first.
- The Chinoku Span: This line is a green line that tracks the current price trends but is shifted to the left by 26 periods and is identical with the price movement at the moment.
- The Senkou Span: The Senkou Span, which forms the Ichimoku Cloud, consists of two separate lines. The first line takes the average of the red line and the blue line and then shifts itself 26 periods to the right. The second line consists of the middle point between the highest and lowest points that occurred during the past 52 periods and is also placed 26 periods to the right. The middle part between these two lines is often shaded gray and represents the cloud that traders see when they take a look at a chart using this trading strategy.
While this type of chart will certainly help certain traders, the Ichimoku Cloud strategy is not recommended for those who are dealing with volatile stocks such as penny stocks or for those who are dealing with long-range stocks. The cloud tends to work better for traditional markets and will help traders to identify trends that should allow them to improve their trading strategy and prevent from experiencing heavy profit loss.
As stated above, it can be quite complicated to simply look at the data points on the chart and understand how to use the Ichimoku Cloud trading strategy right away. If you are interested in learning more about this type of strategy so that you can implement it into your own trading sessions, seek out valuable and informative ichimoku trading strategies that can show you how to become successful using the Ichimoku Cloud.