Categories
Ichimoku

The Three Principles – Wave Principle

A man named Hidenobu Sasaki brought Hosada’s Ichimoku system and the three principles to contemporary times. He worked for Citigroup in Japan when he published his 1996 book, Ichimoku Studies.

These three principles have shared characteristics of many various styles and theories in Western technical analysis. A couple of examples of those would be Elliot Wave Theory and Tom DeMark’s Sequential. I would encourage all readers to pick up Nicole Elliots 2nd edition of Ichimoku Charts – An introduction to Ichimoku Kinko Clouds. It is my opinion that her work is the most in-depth on these three principles – even though she reports she does not use them. I also do not use any of these three principles. Nonetheless, they are a component of the entire Ichimoku system.

Principle One – The Wave Principle

The Wave Principle is an enigma. It is both singular in its nature when compared to Western analysis but also very complimentary. Ichimoku is a very dynamic form of analysis with broad interpretation and flexibility available for the analyst/trader. Elliot Wave Theory is a very static form of analysis with strict rules that must be adhered too.

Much of these patterns are going to be very much the same patterns that new traders and analysts first discover when learning Western-style technical analysis. One of the more interesting elements of the Wave Principle is the naming of each pattern. I am not sure if it was Sasaki or Hosada who used English letters to identify the shapes of these patterns. Many of these patterns are self-explanatory and familiar.

One Wave – ‘I’ Wave

Wave One - 'I' Wave
Wave One – ‘I’ Wave

Called the ‘I’ Wave, it is a simple (probably overly simple) single wave. I would call it a trendline more than a wave, but that is what Hosada calls it.

Two Wave – ‘V’ Wave

Two Wave - 'V' Wave
Two Wave – ‘V’ Wave

The ‘V’ wave is one of the most common patterns in technical analysis, it’s one of the first patterns we learn, but it’s not a specific pattern that we learn by itself. The ‘V’ wave is part of the M or W structure that makes up the majority pattern theory in technical analysis.

Three Wave – ‘N’ Wave

Three Wave - 'N' Wave
Three Wave – ‘N’ Wave

Again, this is a common pattern that most of you are already familiar with. The ‘N’ wave pattern in Nicole Elliot’s book shows symmetrical waves – which is important because the ‘N’ wave is essentially an AB=CD pattern, one of the building blocks of Harmonic Patterns. It is also a perfect description of what an A-B-C corrective wave in Elliot Wave Theory looks like.

Five Wave – ‘P’ Wave and ‘Y’ Wave

Five Wave - 'P' Wave
Five Wave – ‘P’ Wave

The ‘P’ wave is essentially another name for a popular and powerful continuation pattern known as a pennant. ‘P’ waves can also represent ascending or descending triangles. You will also see them in Ending Diagonals in Elliot Wave Theory. The pattern should also be called a ‘b’ pattern because the inverse of the ‘P’ pattern, a bullish pennant, is a ‘b’ shaped pattern – a bearish pennant.

Five Wave - 'Y' Wave
Five Wave – ‘Y’ Wave

The ‘Y’ wave is probably more commonly referred to as a megaphone pattern, broadening top or broadening bottom.

Combined Patterns

Combined Waves
Combined Waves

Although it may not need to be said, charts will show multiple patterns at any given time. And due to the fractalized nature of technical analysis, patterns within patterns are normal.

Wave Counts

Wave Counts
Wave Counts

So this part is the one where it will either make little sense or no sense. If you are new to technical analysis and/or never learned Elliot Wave Theory, the wave count component of the wave principle will make little sense. If you know the Elliot Wave Theory, then the wave count component will make no sense. Waves in Ichimoku are measured by time – a very Gann based approach. Trends are either Long-term or Short-term with no delineation between whether it is a bull market or bear market. There is no limit to the number of waves that can exist in a Long-term trend, but Short-term trends must be in single, double, or triple waves. The Ichimoku wave count is similar and very different from how we measure wave counts in the Elliot Wave Theory. In Elliot Wave Theory, moves occur in either three (corrective) or five (impulse) waves.

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

 

Categories
Forex Market

An Overview Of The Forex Trading Industry

Introduction

Some of the most relevant markets include the Stock market, Futures market, Options market, and Foreign Exchange market. All these markets provide vast trading opportunities, and out of these, Foreign Exchange AKA FOREX is one of the most popular ones. Forex is nothing but the exchange and trade of different country’s currencies. The first Forex trading market was established in Amsterdam nearly five centuries ago, and this explains the rich history of this market.

The Forex market is the largest yet most accessible market in the world. Largest because the daily trading volume of the Forex market is above $5 trillion. To put that in perspective, the average daily trading volume of the NYSE (largest stock market in the world) is just above $20 billion. By this, we can understand the enormous size of this market. Out of this $5 trillion, retail trader transactions contribute 5% to 6%, i.e., about $400 billion. The rest of the transaction volume is from large institutions and businesses.

We also mentioned accessibility because traders have thousands of retail brokers around the globe to choose from. They can start trading currencies in this market with investments starting from just $100. Forex trading is open 24 hours a day and five days a week. It doesn’t operate on weekends. On weekdays, the market doesn’t get closed at the end of each business day, like how the stock market does. Rather the trading shifts from one financial center to others. Some of the major financial centers include London, Sydney, New York, and Tokyo.

What affects the Forex market?

One of the critical factors that most of the experienced traders pay attention to is the macro-economic trend. The forex market reacts to macroeconomic data more than the stock or commodity market. In a stock market, we have companies that are affected by micro-dynamics, which are specific to that company. But that’s not the case in the Forex market. This market is affected and moderated by GDP, unemployment rates, and inflation. The currency could react positively or negatively depending on the data, but after reacting, the trend will be maintained for a long time. The significant pairs to watch during such news releases are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The rate hikes from the U.S. Federal Reserve is also closely watched by traders around the world.

The rise of algorithmic trading

Banks and financial institutions are adopting algorithmic trading systems powered by technological advancement. Technology is changing traders’ approach towards the market. There is a boom in engineered computer programs that offer new ways of creating orders with faster trade execution. The automated systems have improved speed and precision. This technology is expected to eliminate trading bias and human errors that increase the risk in a trade. Algorithmic trading improves trend analysis that greatly helps beginners in reducing losses. Due to this, traders are getting more time to analyze markets and trends.

Future of Forex market

The Forex is continuously growing. Trading currencies is still not a mainstream profession in many of the third world countries. There are still many people who aren’t aware of the fantastic opportunities this industry has to offer. One of the important goals of the brokerage firms is to get more and more people involved in pursuing trading as a serious profession.

  • Market volatility will rise as newer strategies are being released and used by traders.
  • Strict regulation in the forex market will also attract conservative traders. However, some traders search for unregulated brokers since they provide inexpensive trading services.
  • Paid systems and strategies will continue to grow among wealthy investors.
  • Trading Forex is getting easier and extremely accessible with the advent of smartphone trading applications.

Bottom line

The Forex industry has changed significantly over the years. Many efforts are being made to create a legitimate trading environment as the industry has become more dynamic and ever-changing. Major European regulators are taking serious steps to tighten control of the Forex market. Besides, they are also introducing new rules to forbid high leverage trading to protect investor’s funds.

A known fact about Forex trading is that most traders fail. It is estimated that 96% of the people end up losing. To be in the succeeding 4%, one should have a disciplined approach to the way they trade. Some of the practices include starting with low capital, managing risk, controlling emotions, and accepting failures. If you follow these rules, you are on track to becoming a successful trader.

Also, education plays an essential role for someone to succeed in their Forex trading journey. We at Forex Academy designed a course just for our readers. By taking up this free course, one can learn everything about Forex trading even if they have zero experience. You can find all of our course articles here.

Got any questions? Let us know in the comments below.

Categories
Forex Course

2 – Preface To The Forex Market

Introduction

Forex AKA Foreign exchange is the largest market in the world where all the global currencies are traded. It can also be considered as a place where individuals, companies, and banks convert one currency into another. The entire Forex market is decentralized and is maintained by the banks across the globe. On average, the daily trading volume of the whole Forex market is more than $5 trillion. This explains the sheer size and liquidity of this market. Forex market is an essential part of the global economy and is active 24/5 (From Monday to Friday)

The Purpose

Typically, the exchange of goods and services happens for money, and this money is nothing but currency. The respective country’s governments determine the value of that currency. Hence the value of one country’s currency is never equal to that of another. This is the reason why we need foreign exchange to exchange one country’s currency to others. Forex market is essential for any of the global imports/exports to happen, for any employer who needs to pay salaries to their overseas employees, for a tourist who is traveling abroad, etc.

Forex trading

It refers to the buying and selling of currencies that belong to different countries. In Forex trading, the buying and selling of currencies happen at the same time. That is, if a trader is trading EURUSD pair, he/she is essentially selling the USD he has in order to buy Euros. Traders make a profit when they sell a currency at a higher price than the cost they paid to buy that particular currency. This entire process was complicated even a decade ago. But now, with the advent of technology, anyone can start trading by using a lot of online trading systems.

Currency Pairs

As discussed above, the buying and selling of currencies happen in pairs. There are three types of Forex currency pairs. They are Majors, Minors, and Exotics.

Major currency pairs are those where the USD is involved. These are the most frequently traded pairs in the market, and they make up to ~85% of the Forex transactions that happen in a day.

Examples: EUR/USD, USD/JPY, GBP/USD etc.

Minor currency pairs are those that don’t contain USD. They are also known as cross pairs. Euro, Pound, and Yen are the most popular currencies that make up the minor currency pairs.

Examples: EUR/CHF, AUD/JPY, GBP/CAD etc.

Exotic pairs are the ones where one is a major currency, and the other is a small or emerging currency.

Examples: USD/PLN, GBP/MXN, EUR/CZK etc.

Types of Forex markets

Spot market – The physical exchange of the currency pair takes place at the point of trade, i.e., as soon as the price is fixed between buyer and seller. The transaction is settled on the spot or at least within a short period of time.

Forward market – Here, a contract is made between the buyer and seller, where they agree upon a price to exchange the currency pair. This contract will be settled at a date in the future or within a range of future dates.

Futures market – Even in this type of market, a contract is fixed between the buyer and seller. A price is set on a future date delivery. The difference between Forward and Futures market is that in the latter, the contract is legally bonded between the parties.

That’s about the introduction to the Forex market. We hope you had a good read. In the next article, we will talk about some important Forex terms and phrases. Now, let’s see if you can get the below questions right.

[wp_quiz id=”41271″]