Ichimoku Cloud or Ichimoku Kinko Hyo is a leading trading indicator developed by a Japanese named Goichi Hosoda. The uniqueness of this trading indicator is that it consists of several elements that allow it to work as an individual trading strategy. If you use this trading indicator, you can make the right amount of money without any help from other indicators.
In the following section, we will see the details about this indicator along with a trading strategy. There are several trading strategies of this indicator, and of them, we will do the best of it.
Elements of Ichimoku Cloud
Ichimoku cloud is a messy indicator with a lot of elements that often confuse traders. However, if you understand the ingredients well, you can make a good profit from it.
Let has a look at the elements of Ichimoku Indicators:
The Senkou Span A is a fast cloud that is created from the average price of the last 26 candles. On the other hand, Senkou span B is the lowest cloud that is used by 52 periods. Therefore, Senkou Span B is slower than the Senkou Span A that shows results later.
Ichimoku Cloud Trading Strategy
Ichimoku cloud is a trading indicator that considers all the trading instruments to predict the price without any help from other indicators. Furthermore, you can use this trading indicator to create an individual trading strategy, or you can add it with your existing trading strategy to increase the probability.
In this section, we will see a trading strategy based on the Ichimoku Cloud only and without any help from other trading indicators.
The image above represents how the price rejected from the dynamic Tenkan Sen and Kijun Sen line and moved to the upside. In this market context, the price above the Kumo cloud, which indicates that the overall trend is bullish.
See the image below the same trading opportunity in the bearish market structure:
The image above represents the divergence between the price and the Oscillator.
Trade Management of Ichimoku Cloud Strategy
As we know, the potential market consists of volatility and uncertainty. Therefore we need to minimize the risk to avoid any uncertain market condition.
At first, you should not invest money that we are not willing to lose. It is recommended to use not more than 2% of your capital in one Trent. If you use an excess of the recommended risk, you may panic when you see the price move against your Direction. Therefore, it will lead you to make wrong decisions by closing the trade early or adding more positions in a losing trade, which is a bad practice.
If we summarise the whole concept of Ichimoku Kinko Hyo, we can find the essential element as below-
Furthermore, we can use the Ichimoku cloud trading strategy with other reading strategies like support and resistance, price action, Bollinger band, or moving average. Trade management is an essential part of every strategy. To avoid level circumstances, we can minimize the risk as low as possible.