Ichimoku is a technical analysis tool that has gained immense popularity among forex traders over the years. It is a complex system that consists of various indicators that help traders determine market trends, support, and resistance levels, and potential entry and exit points. The Ichimoku system is particularly useful for forex traders because it is versatile and can be applied to any currency pair or time frame. In this article, we will discuss how to trade forex with Ichimoku on DailyFX.
Understanding the Ichimoku System
The Ichimoku system was developed by a Japanese journalist named Goichi Hosoda in the 1960s. The tool is based on a combination of five different indicators, which are:
1. Tenkan-sen (Conversion Line): This is a moving average of the highest high and lowest low over the past nine periods. It is displayed as a red line on the Ichimoku chart.
2. Kijun-sen (Base Line): This is a moving average of the highest high and lowest low over the past 26 periods. It is displayed as a blue line on the Ichimoku chart.
3. Senkou Span A (Leading Span A): This is the average of the Tenkan-sen and Kijun-sen, plotted 26 periods ahead. It is displayed as a green line on the Ichimoku chart.
4. Senkou Span B (Leading Span B): This is the average of the highest high and lowest low over the past 52 periods, plotted 26 periods ahead. It is displayed as an orange line on the Ichimoku chart.
5. Chikou Span (Lagging Span): This is the closing price of the current candle, plotted 26 periods back. It is displayed as a purple line on the Ichimoku chart.
The Ichimoku chart also includes a cloud, which is formed by the area between Senkou Span A and Senkou Span B. The cloud is displayed as a shaded area on the Ichimoku chart.
Trading with Ichimoku
Now that we have a basic understanding of the Ichimoku system, let’s explore how to use it to trade forex on DailyFX.
1. Identify the trend: The first step in trading with Ichimoku is to identify the trend. This can be done by looking at the cloud on the Ichimoku chart. If the price is above the cloud, the trend is bullish, and if the price is below the cloud, the trend is bearish.
2. Confirm the trend: Once you have identified the trend, you need to confirm it using the Tenkan-sen and Kijun-sen lines. If the Tenkan-sen is above the Kijun-sen, this confirms a bullish trend, and if the Tenkan-sen is below the Kijun-sen, this confirms a bearish trend.
3. Look for entry signals: Once you have confirmed the trend, you can look for entry signals using the Chikou Span. If the Chikou Span is above the price, this is a bullish signal, and if the Chikou Span is below the price, this is a bearish signal.
4. Set stop-loss and take-profit levels: Once you have entered a trade, you need to set stop-loss and take-profit levels. Stop-loss levels should be set below the cloud for long positions and above the cloud for short positions. Take-profit levels should be set at key support and resistance levels or at the opposite side of the cloud.
5. Monitor the trade: Finally, you need to monitor the trade and adjust your stop-loss and take-profit levels as the price moves. You can also use the cloud as a trailing stop-loss level.
Conclusion
The Ichimoku system is a powerful tool that can help forex traders identify trends, support and resistance levels, and potential entry and exit points. Trading with Ichimoku on DailyFX requires an understanding of the various indicators and how to interpret them. By following the steps outlined in this article, you can start trading with Ichimoku on DailyFX and potentially increase your profits.
