Forex Trading

Application of Ichimoku Cloud in the Online Forex Market

Application of Ichimoku Cloud in the Online Forex Market 1 Comment

Ichimoku Kinko Hyo, or, to put it more simply, Ichimoku (equilibrium) chart is a technical analysis indicator which serves for determining the online forex market trends, the support and resistance levels and generating buy and sell signals. It is most widely used in daily and weekly charts. Usually four time intervals of different length are applied in order to set up the parameters of this chart. These intervals create the base for identifying the meaning of separate lines that make up this chart.

Taking the numerous advantages that the Ichimoku chart can offer, especially its ability to calculate the price action, entry and exit points and the trend direction, many forex traders consider a good idea to apply it in terms of the online forex market. This is the reason why the Ichimoku chart is gaining more and more popularity nowadays, alongside with such well-known and widely used technical patterns as moving averages and others.


The most important component of the Ichimoku chart is the Ichimoku “cloud” which illustrates current and historical price action. Its behavior is pretty much the same as with the simple support and resistance levels – it creates determining barriers. If you don’t know some term I recommend to visit Forex glossary.

The first two components of the Ichimoku are the Tenkan and Kijun Sens, while the last two Senkou Span A and Senkou Span B. The former is the sum of Tenkan and Kijun Sens divided by two. Then the calculations of 26 periods of time ahead of the present price action are plotted. The latter is the sum of highest high and the lowest low divided by two. This calculation is also plotted ahead, but in terms of 26 periods and the 44 historical time periods are taken into consideration in order to do this.

When all these lines are plotted in the Ichimoku chart, the area between Senkou Span A and Senkou Span B is called the Kumo, or cloud. It is thicker in comparison with the support and resistance lines, thus it filters the information about the price action much better. What is also very important and what makes the Ichimoku cloud quite valuable is that it also takes the online forex market volatility into consideration. A break through the cloud and the following move above or below it signals about the higher probability of a profitable trade.

Despite the fact that the Ichimoku chart may seem a bit frightening at the beginning (due to the abundance of lines and crossovers), but once it is broken down, its usefulness becomes obvious both to the beginning and the experienced forex traders. It doesn’t only combine the three indicators into one, but is also perfect filter of the price action information. Thus, the probability of successful trades in the online forex market can increase considerably thanks to the Ichimoku chart.

 

Authored by Alexander Collins

Alexander Collins is a Forex trader and creator of Forex trading system EA Shark. If you want to start automated Forex trading you are on the right place.

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