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Forex Ichimoku strategies Forex Trading Strategies

Breakdown of the Ichimoku Strategy

Trading only with the Ichimoku will not get you to the top trading levels, but some parts of this indicator are worth analyzing as one of the best you can find according to certain professional technical traders. Taking elements from Ichimoku and applying it to your system is a good idea. Very often taking certain elements with a specific role from other systems and adapting them to your system advances trading to another level in terms of technical precision. However, these improvements are a priority only when you develop money management and a trader’s mindset.

Ichimoku allows a beginner to develop all of it. It has enough parts to cover the most important trading aspects and it is also a base for money management. Of course, developing a proper mindset takes time, and only if you have the discipline not to deviate from the plan. Ichimoku system or indicator will not get you far, at least not into the pro trading level, yet on the other hand, it presents a great path for learning. In our previous Ichimoku article, we have discussed the best ways to use it. Now we are going to see how good it is when each element is separately analyzed. Collectively we already know Ichimoku is a good indicator, but can it be better or can you use some parts of it that are just great on its own for something else?

The synergic effect all these elements create can be broken if you tamper with them, but does it mean a system is great only if its elements are great separately? According to technical prop traders, this holds true, players make the team, however, bad players are unlikely to make a great team however good they are when playing together. So let’s break down the Ichimoku, see how good the elements are. 

The Chinkou Span element is not used very often and is unique to the rules of the Ichimoku system. It is unusual in many ways since it is just a price level line shifted 26 periods back and yet it is used as a trade filter in conjunction with the Ichimoku cloud. Whatever your decision on using it is, Ichimoku trading will still be good enough provided you stick with the plans. According to professional traders, when you trade with it for a long time, you will want to move on and improve. A lot is missing with Ichimoku, forex areas you want to cover and implement into the system. Similarly to playing chess, when you start without any plan or strategy, anyone can beat you. When you follow a structure or a strategy, suddenly you can beat anyone you know. The basic strategy you have will not work against professionals, of course. This is the same feeling we get trading with Ichimoku only after some time. 

Ichimoku indicators are quite old, made in 1930. They still work but makes you wonder is it possible nothing better has been made for almost a century and can new, better indicators be applied instead. When you test new indicators you will see they are not very good, more often they are abysmal when it comes to signals and filters. But occasionally you will find great ones worth keeping. Technical traders say some people hate indicators because they never went on the quest to find the ones worth in gold. Note though, the awesome indicators you find may not play well when you plug them into your system. Creating this algorithm is a lot of trial and error work that not many will want to pursue.

Even though the indicator is great but does not fit however you tweak it, keep it. Systems evolve with your improvement and research, and it may not take a while for this great indicator finds its role in a new system version of yours. Now, Ichimoku has not evolved for a long time, forex has changed, computers have changed, people too, it is interesting how it still works to a certain limit. Additionally, forcing you to use the Ichimoku indicators combination only is a very limiting view and practice. It will not get you far. 

Opinion presented in this article should not concern you, especially if you already have a system that brings profits consistently. It is for those who are still building their system. Ichimoku Indicators are all based on lines calculated based on the price movements. Some will call these secondary indicators, primary is the price action. These lines create a cloud, MA crossing signals, and the Chikou Span on its own. Some people create mystery about the secrets of Chinkou Span, but there are no secrets, if traders do not see how it fits their systems it does not mean there is a secret ( and also profitable?) meaning.

It is common to see people making something more interesting by stirring up a mystery, hype, or other unproven claims. Mysticism explains nothing, however, this trend was popular since the 80s and it was carried over to healthcare, conspiracies, lifestyle, diets, mental practices, and to forex trading too. There is no room for these interpretations for professional traders. Everything technical traders do have a number, a measure, or evident meaning. Ichimoku indicator and especially Chikou Span attract esoteric interpretations you should ignore. There are so many ways Ichimoku can be interpreted and this is not the one you need even though they are popular. 

Since we are going to measure the performance of every Ichimoku element separately, let’s see how Chikou Span goes on a daily chart. You can use this line in the basic already explained way or have some other interpretation with the price, for example. If we look at Chikou Span only, when the price is below the line 26 periods before we trade only shorts, and when it is above only long trades. So it is still a filter indicator and there are even more ways to use it. Try to test is with your favorite trend confirmation indicator.

Does Chikou Span filter bad trades, make your confirmation indicator better? If the answer is yes then you may have an element worth your while. However, according to the testing made by other prop traders, the results are not good and pale to other filtering methods. It should eliminate losers and keep the good as much as possible. Unfortunately, Chikou Span filtered too many winners and not enough losers whatever method we have used. So we are eliminating this element from our list, we will have to find other filters. But let’s move on to other arts of Ichimoku.

Ichimoku Cloud is formed by Senkou span A and B. The cloud is the purpose of these two lines. Traders also have many ways to what they pay attention to and how they interpret signals or filtering with the clouds and the lines. There are three main ways. The first one is the classic way, take only shorts if the price is below the cloud and vice versa. The second one is using the cloud extension. If you have noticed, the cloud goes beyond the current asset price, into the future.

Since we have it in the future, it can also mean it is plotting a prediction of how the price can behave. The cloud has a bullish and bearish color, usually marked by green and red shade. The cloud will shift bullish and bearish shades telling traders there is a price momentum shift probably too. The third most common use of the cloud is as a dynamic Support and Resistance. Traders will interpret any price breakouts out of the cloud as a signal to enter a trade. In this case, the cloud is a signal generator and a reversal predictor, not a filter indicator. 

Now when we test the breakout way of interpreting the cloud we do not have consistent results. There are many cases when the price closed and broke through the cloud only to reverse. Some of the breakouts are false, some are good, overall not good enough compared to other tools. So this method is not classic but it does not mean it is better either. However, you will need to test this out yourself. As for the reversals, we found it is hard to define a reversal signal as the price can enter and get out of a cloud multiple times in a couple of days. This problem is especially apparent when in ranging areas, where reversals should work better than in trending. Whatsmore, reversal strategies are not as good as trend following according to many studies. We will eliminate the breakout way of how the cloud is interpreted and move on to the cloud predictor way.

Whenever the Kumo Cloud turns its colors, this is a signal the price is going that direction. When we have a future shift and see the cloud in front of the current price, we can use it as a predictive signal whenever it switches colors. Is it accurate in predictions? According to our tests, its performance as a trend confirmation or prediction is abysmal. It even feels like the prediction part of the cloud is there just because the cloud is used as a filter in a classic way, and the rest of it is just the result of the code. It was never meant to be a confirmation or prediction tool.

It would be great to have something that predicts the price, even with average accuracy, but we have not found a way to have anything remotely useable. A combination with other indicators could make it better, and it can be your quest to find it. Just do not invest too much effort into something it is unlikely to get better. We say this because no indicator can predict the effect of the big banks, news events, and other catalysts. The only way to partly predict this is by having insider bank information. Let’s move on to the next way. 

We have only left the classic Ichimoku cloud role interpretation. While trading this way, one cannot notice trades are far apart if we trade only when the cloud filter allows for it, without any other rule, such as when the price breaks through the cloud. Now, this is great for training your discipline but it definitely filters out trends that make a difference to the balance have you taken the trades filtered. On some occasions, only two to three trades can happen on a particular currency pair in one year. This is not optimal if you want to forward test some system, it would take you a long time to have a good trading sample. When you get advanced, the Kumo cloud is not good enough. If you are a beginner, the cloud and complete Ichimiku will teach you a lot of essential skills. 

After all said and done, the cloud and all of its interpretations do not have a place in prop traders’ algorithms. Moving on to the last pieces of Ichimoku, the MAs. In the article about crossovers we have presented the drawbacks and how MAs can be used more effectively. If we take the classic Ichimoku approach and wait for the MA crossover as a trade entry signal, they tend to lag too much, similarly to the other MAs types. This is not about the settings, it is inherent to crossovers no matter what settings you set. If we take the price instead of one MA and use it as the signal generator when the price close-crosses the MA, we have a whole new result. We can take the faster MA out and use only Kijun-Sen.

What we get is very good entries but not quite in line with our usual Take Profit and Stop Loss levels according to the ATR. There is simply too much drawdown. However, Kijun-Sen can play a critical role if we follow our system structure. Kijun-Sen is a top-rated Baseline element to some prop traders. On its own, it can generate consistent results if each crossover is taken as an entry. This means it is a very good candidate for our system that can refine the signals once use in conjunction with other elements. 

Kijun-Sen is the element we can take out of the Ichimoku. We have described the Baseline in another article, according to one trader’s ranking, Kijun-Sen is top 100 indicator in the baseline category. You do not need to adjust the settings if you follow our structure on the daily chart. The baseline is also the core for our money management, it is the starting point for our ATR measurements and it is involved in some of the trading rules. Now you have something for a takeaway, still do not stop your search for better tools. Kijun-Sen will up your odds tremendously, still, it may not be enough for the elite rank. 

Finally, you can trade Ichimoku, test it, see it in different ways, even find something we did not, there is nothing obligatory in this article. Ichimoku has a forced group of indicators, it will force you to trade its way even though it has limited performance. Later on, when you need to advance, you need to make your system. Kijun-Sen based indicator already exist, some of them have some addons that may or may not improve its effectiveness. One example of such an indicator is Jurik Smoother Kijun-Sen by Mladen, available for free. It is available on various popular trading websites.

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Beginners Forex Education Forex Basic Strategies

Let’s Discuss Get Rich Quick Trading Strategies

A lot of the adverts that you see around the internet all seem to be based around the fact that you are able to get rich pretty quick, even overnight when trading, but is this actually the case? Can you actually get rich overnight, or is that just a fantasy?

The truth of the matter is that you can in fact get rich quick overnight, it certainly is possible, is it likely? That is another question and one that is a resounding no, so you can get rich, but you are far more likely to lose any money that you put in rather than making more. We will point out straight away, that while he adverts may say that you can get rich quick, you certainly won’t with them, those sorts of adverts are complete scams and should be avoided at all costs.

There are a few different strategies that you could use to get rich pretty quick, again we must point out that we are not recommending that you try these strategies, there is probably a 0.01% chance that you can sustain them for more than a day or two and so they are ultimately a sure-fire way to lose your money and to blow your account. So let’s take a little look at what these strategies are.

Double or Nothing

The name pretty much suggests what this one is, it is pretty much like flipping a coin, you will either double your money or you will blow your account. It is certainly not something that you should be doing unless you are pretty heavily drunk and are happy to throw away whatever money you have lying about. You will simply put on a trade with a much higher trade size than you should, place a take profit at the point where the balance would double, place, and sit back and see what happens. Some people put it to a 10 pip movement to blow, others a bit more, but people who do this are often looking for a quick turnaround, so it will normally only take a few pips up or down to either double or blow the account. I am sure that you can see why this is not a sustainable method, simply because at some point you will be wrong and that will be everything gone.

For those that wish to try this rather risky strategy, we would highly recommend that if you win the first trade, take out the initial money, at least this will protect the moment that you put in. We have actually seen people win  3 or 4 of these trades in a row, going from $10 to $160 in next to no time, of course, the next trade lost and so they lost it all. If you remove that initial deposit, at least you won’t have lost anything. We have also seen people lose the first trade 5 or 6 times in a row, will take a lot of luck to make that money back and if you get into that situation, it is probably better to just quit and walk away.

Martingale

If you have been in the casino game or done any sort of gambling in the past then you would have probably heard of the Martingale strategy. The strategy was eaten and was popular in 18th century France. The strategy is based around doubling your bet or in this case trade size each time that you lose. So if you had a trade of 0.01 lots which lost, you would then do a trade of 0.02 lots, if those lose then you would do a trade of 0.04 lots, you would continue to do this until you had a trad that won, the winning trade would then win back all the original losses plus the profits that the original trade would have won. Seems like a good strategy, and in theory, it is. In theory, it could give you a 100% profit rate as you will eventually have a winning trade, won’t you? Yes, but how long will it take?

The problem with this strategy is that it could take an unlimited amount of money in order to make that trade. If you have a balance of $100 you will only have a certain number of trades available for you before you lose all your money, if you have a $1000 account, you only have two extra trades than you would have and $100. The more times you need to trade, the amount required will grow exponentially, so unless you have an unlimited amount of money, at one point or another, you will blow the account.

Rapid Trading

Another form of trading that looks to try and double your money, or at least trade it up as quickly as possible is something called rapid trading, this basically involves you making a lot of trades, and we mean a lot of trades in order to take lots of little profits. The problem with this trading strategy is that it is very easy to overwhelm yourself with the number of trades that you have. In a normal scenario, you may have one, two, or maybe three trades active at any one time, but with the rapid trading strategy you can quickly grow up to 100 open trades, on various pairs, or even on the same pair. The issue really becomes apparent when you do not have stop losses set properly on these trades, so you could ultimately have 100 small trades going against you at the same time, giving the same results as placing one very large trade, well above the size that you should be trading.

There are a number of different expert advisors that have been set up to work this way, they are often the ones claiming that they are able to double your money in a day, and they actually can, the problem is that they may double it one day, the next day they will completely lose everything. This is an extremely reckless strategy to be using and one that we would certainly not recommend. Having said that, it does look pretty incredible seeing 100 different grades all changing prices at the same time, it looks good but doesn’t work well.

Borrow Money

This is probably the worst idea that you could probably have, yet it is something that a lot of people still do. One of the major sayings and pieces of advice that people are given is not to trade anything that you cannot afford to lose, this ensures that you are still able to pay your rent and buy some food, so what would make you think that it is a good idea to borrow some money in order to trade? We understand that having more money means that you can make more money, but what if you lose? There is a  good chance that you will lose, if you do, then how are you going to be able to pay that money back.

Trading or gambling with borrowed money is a disaster waiting to happen, if the thought of doing this ever crosses your mind, try to think about what would happen if you lose, you will be paying that money back for years to come, a lot of years depending on the amount that you borrow. Don’t do it, just don’t. Only trade what you can afford to even if the prospect of making a lot more money is a good one.

So those are a few different strategies that really can live up to the promise of making you rich pretty quick, the problem is that the chance of them actually making you rich is very low due to the massive amounts of risk involved in them, in fact, we would just as likely suggest that you put all of your money on the lottery, you probably have just as much chance of winning that than you do for these strategies to succeed over any long period of time.

We would advise that you stick to tried and true strategies that have been tested and proven to work, trading is not a quick money-making scheme, it is a long term project that can really change your future if used properly.