The Ichimoku indicator was originally used with the Nikkei index, but nowadays it is used on every market where people trade. So also for the Forex market as I mentioned in my other posts.
There are different ways to trade the Forex market using Ichimoku (just to name a few).
- TK Cross
- Kumo break
- Kumo bounce
- Kijun break
- Kijun bounce
- Chickou Span Cross
The first two are the basic ones. So I thought let’s start with the basics.
The T stands for the Tenkan Sen and the K stands for the Kijun Sen. The TK-Cross then stands for when these two lines, the Tenkan Sen and the Kijun Sen, cross each other. There are two possibilities.
One: theTenkan Sen crosses from below to above the Kijun Sen. We then call it a bullish cross. It is an indication that a buy is coming up. In the picture below you will see a bullish TK-Cross in the black circle.
The TK-Cross is above the cloud, so it is a strong signal.
What makes the signal strong or not? If the TK-Cross is bullish, where did it happen?
But it is not enough to enter the market. We want some more confirmations.
One of them we will get if we look at the Chickou Span. The Chickou Span should be above the price for a confirmation of a buy. In this case, we have the second confirmation too.
The Kumo will give you a 3rd confirmation. What is happening 26 periods ahead? Is the cloud bullish?
In the picture above we can see that the Kumo, Cloud is bullish too. So it looks like we are good to go. But we also learned that all the lines of the Ichimoku form a resistance line. In the picture above you can see a horizontal black line, the ceiling.
I think that there is a buy, but a small one, because of the ceiling. That is what happened.
Exit strategy: if the ceiling was not there, where should we get out?
Price crosses Kijun or a new TK-Cross over again.
Second: theTenkan Sen crosses from above to below the Kijun Sen. We then call it a bearish cross. It is an indication that a sell is coming up. In the picture below you will see a bearish TK-Cross in the black circle. The TK-Cross is below the cloud, so it is a strong signal.
2nd confirmation: Chickou Span is below price.
3rd confirmation: How is the cloud in the future? Bearish.
Where to get out? Look at the floor formed by the Chickou Span (horizontal black line).
So, the sell is good to go!!
When people trade the Kumo Breakout, people wait for the candles to close outside the cloud, outside the Kumo.
It is a buy when the price breaks up through the top of the Kumo.
It is a sell when price breaks down below the last line of the Kumo.
Again we need some confirmations before we are good to go.
For a bullish trade:
- Price needs to break and close above the Kumo Cloud; must be the first candle out.
- The price needs to close above the Kijun Sen.
- In the future, we need a bullish Kumo twist.
- The Chickou Span needs to be above the price.
- The Stop loss is at either break out candle open, Kumo top or bottom, or Kijun level.
- Exit at price close below Kijun.
For a bearish trade:
- Price needs to break and close below the Kumo, here again, must be the first candle out.
- Price needs to close below the Kijun Sen.
- In the future, there should be a bearish Kumo twist.
- The Chickou Span needs to be below the price.
- the Stop loss at either break out candle open, Kumo Top or Bottom, or Kijun level.
- Exit at price close above Kijun.
Here you see an example of a Kumo break where you do not have all the confirmations, but 3 candles later you have. Take a look. It is the GBPNZD, 4H chart on July 18, 2018.
Well, this is the way I understand the TK-Cross and the Kumo break. I will be trying them out and see how they work out for me.