Ichimoku Day Trading Strategy (Cloud Trading Explained For Beginners)

What’s up Traders, in this article, we’re going to be talking about Ichimoku Day Trading Strategy (Cloud Trading Explained For Beginners).

In this article we’ll discuss about the Ichimoku indicator, I’ll show you how to correctly read and take signals with this indicator and we’ll also see some tips on how we can improve our winning ration by trading the Ichimoku cloud. 

An Ichimoku chart is a trend-following system with an indicator similar to moving averages. Ichimoku is one of the trading indicators that predicts price movement and not only measures it. The advantage of the indicator is the fact that offers a unique perspective of support and resistance. 

 

Ichimoku seem complicated

 

• Conversion line (Turning line)
• Base line (Confirmation line)
• Lagging span (Lagging line)
• Kumo cloud

For most traders, Ichimoku might seem complicated, but once you get familiar with how to interpret the charts you’ll spot great trading signals. I’ll try to keep things short and simple, so we don’t overcomplicate things.

 

Conversion line (Turning line)

First, we have the conversion line. This is a short-term line also known as the turning line. This signals an area of minor support or resistance. So, if you’re all about short term and scalping, follow the conversion line. 

 

Base line (Confirmation line)

Second, we have the base line. Is also known as the confirmation line and serves as a signal for support and resistance levels on medium term. Some traders use base line as a trailing stop level. 

 

Lagging span (Lagging line)

Then, we have the lagging span, also known as the lagging line, used for confirmation of signals. Lagging span can also serve as a support and resistance level. 

 

Kumo cloud

Then, maybe the most important tool of Ichimoku indicator, we have the Kumo cloud.

I don’t want to bore you with numbers and periods based on which the cloud is calculated, all you need to know that is formed from 2 lines ( span a and span b), which act as major areas of dynamic support and resistance. 

 

How to read Ichimoku Indicator

 

• Conversion line (Short-term)
• Base line – Conversion line Crossover (Lagging span filter)
• Base line – Conversion line Crossover (Kumo cloud filter)
• Use Ichimoku in trending conditions

Now that we saw the main components, let’s see how you should read the Ichimoku indicator: As i said before, the conversion line measures short-term price movement. 

 

Conversion line (Short-term)

If the market price is above the conversion line, this suggests a short-term upward momentum. 

If the price is below conversion line, this suggests a short-term downward momentum an increasing conversion line indicates an upward trend. 

A decreasing conversion line indicates a downward trend. 

Now, the base line represents medium-term price movement – also known as the confirmation line.

If the market price is above the base line, this suggests a medium-term upward momentum. If the price is below base line, this Suggests a medium-term downward momentum.

An increasing base line indicates an upward trend. A decreasing base line indicates a downward trend next is the lagging span. This line indicates the big-picture of the trend (the evolution of the current price action in relation to previous price action).

When lagging span is above the current price, this indicates that current prices are higher than previously, and suggest a bullish bias. 

When lagging span is below the current price, this indicates that current prices are lower than previously, and suggest a bearish bias.

When lagging span is near the current price, this indicates a trading range and finally the Kumo, plotted as a cloud, indicates dynamic support and resistance, based upon price action. 

The longer the price stays below/above the Kumo cloud, the stronger the trend is. When the cloud is wide, the expected support or resistance is strong.

When the cloud is thin, the expected support/resistance is weak. You should never trade inside the Kumo cloud, very important rule. 

Now let’s see, how we can trade with Ichimoku based on what we’ve learned so far. 

 

Base line – Conversion line Crossover (Lagging span filter)

The first strategy involves base line – conversion line crossover, with the lagging line as filter The crossover between base line and conversion line can offer trading opportunities, in a similar fashion to a moving average crossover. 

When fast-moving base line crosses above the slower-moving conversion line, we have a buy signal. 

When fast-moving base line crosses below the slower-moving conversion line, we have a sell signal.

We could filter the signals received with the lagging span, for safer entries. Thus, we could only take positions that are in line with the overall trend.

If base line crosses above conversion line, you would only buy if the lagging span indicates a bullish bias.

If base line crosses below conversion line, you would only sell if the lagging span indicates a bearish bias. 

 

Base line – Conversion line Crossover (Kumo cloud filter)

 

• Kumo cloud Breakout
• Kumo cloud Crossover

Another similar strategy involves the base line conversion line crossover ( but the filtering technique takes the Ichimoku Kumo cloud into consideration). 

When base line crosses above the slower-moving conversion line, above the Kumo cloud, we have a strong buy signal.

When base line crosses above the conversion line, below the Kumo cloud, we have a weak buy signal. 

When base line crosses below the conversion line, below the Kumo cloud, we have a strong sell signal. When base line crosses below the conversion line, above the Kumo cloud, we have a weak sell signal. 

 

Kumo cloud Breakout

Another trading technique involves the Kumo cloud breakout. This signal occurs when the price cuts through the Kumo cloud. When the price enters the Kumo cloud and breaks its upper wall upward, we have a bullish signal.

When the price enters the Kumo and breaks its lower wall downward, we have a bearish signal. 

 

Kumo cloud Crossover

The crossover between span lines forming the cloud is another trading strategy used by traders, in a similar fashion to a moving average crossover. 

However, we must take into consideration that the lines of the cloud are projected forward by 26 periods. When span a of the Kumo cloud cuts the span b from the below to the upside, and prices are positioned above the Kumo cloud, we have a strong buy signal.

When span a cuts the span b from the upside to the bottom, and prices are positioned below the Kumo cloud, we have a strong sell signal. 

When span a cuts the span b from the bottom to the upside, and prices are positioned below the Kumo, we have a weak buy signal. 

When span a cuts the span b from the upside to the bottom, and prices are positioned above the Kumo, we have a weak sell signal.

All in all, the Ichimoku is an interesting indicator, excellent at offering dynamic support and resistance levels. Its main advantage is the fact that is good at measuring the direction and intensity of the current market trend. 

 

Use Ichimoku in trending conditions

Just be careful and use it in trending conditions, because during non-trending markets it will offer a lot of false signals. 

 

Final words

Okay, so that’s it I’ve come to the end of this presentation, I hope you’ve enjoyed it and if you really do please write a comment and click the share buttons smash it right, and click to subscribe bell to Allow notifications be updated.

Whenever, I publish content like, this and finally any questions or feedback let me know below and I’ll do my best to help, so with this guide, I hope you got value out of this presentation, I wish you good luck and good trading and I’ll talk to you soon you.

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