When it comes to indicators, one such tool is fast becoming a go-to favourite for Exness traders and it’s called the Ichimoku cloud. It gives resistance indications, support levels, trend forecasting, and it can be added to your MT4 chart without any trouble. So why isn’t it the most highly acclaimed indicator of all time? Because it looks scary, and most first-time Ichimoku traders get lost when they first activate it. After you’ve read this introductory forex training tutorial, you’ll be ready to start using the Ichimoku tool and enjoy all the benefits that come with being an Ichimoku trader.
Practice as you learn the Ichimoku strategy
Trading with the Ichimoku Cloud
Once you’ve signed up and downloaded the MetaTrader 4 or MetaTrader 5 trading platform, it’s time to choose your target currency pair. Once you’ve dragged it/them to the empty space, you’ll see a currency chart. Adding the Ichimoku indicator is as simple going to the "Insert" menu >> Indicators >> Ichimoku. There are two powerful factors working together to make the Ichimoku indicator so popular with professional traders. The first is the baseline, the second is the conversion. The third (and slightly scary) is the cloud.
Reading between the lines
As I said earlier, the Conversion and Baselines look like moving averages on your charts, but they do something different. The Conversion and the Baselines show the middle of the 9 and the 26-period high and low. This means that they look back 9 and 26 periods (candles), take the highest and the lowest price levels during that period and then plot the line in the middle of that range.
Conversion and baselines signals
The Conversion and Baselines have two purposes: first, they act as support and resistance during trends, just like moving averages. Secondly, they provide momentum information. When the price is trading above the two lines and when the Conversion line is above the Baseline, it signals bullish momentum. This is also very similar to moving averages: when the shorter moving average crosses above the longer moving average, it means that momentum is up and rising.
What does the Ichimoku Cloud do?
The Ichimoku cloud is an MT4 automatic indicator that analyzes the current price movements and makes forecasting patterns based on tried and tested algorithms. When you open a free account with Exness, you get access to both the live and the demo trading platform where the Ichomoku trading strategy can be performed. The Ichimoku Cloud is made up of a lower and an upper boundary, and the space in between the two lines is then often shaded either green or red. Let’s explore what this means without getting too technical.
The first and faster-moving boundary of the Cloud is the average between the Conversion and the Baselines. The second, slower moving boundary is the middle between the 52-period high and low. An important characteristic of the Cloud is that it is projected 26 periods into the future.
The general idea behind the Cloud is very similar to the Conversion and Baselines since the two boundaries are based on the same premises. First, the Cloud acts as support and resistance and it also provides trend direction and momentum information.
Basically, the Cloud confirms an uptrend when the price is above the Cloud and a downtrend when the price is below the Cloud. The space within the Cloud is a noise zone and trading here is often avoided. A rally is reinforced when the Cloud is green and a strong downtrend is confirmed by a red Cloud.
How to use the cloud
Now that we have a solid understanding of what the individual components do and what their signals and meanings are, we can take a look at how to use the Ichimoku indicator to analyze price charts and produce trading signals.
With the help of the Ichimoku Cloud, traders can easily filter between longer-term upward and downward trends. The concept suggests that when the price is below the cloud, it reinforces the idea of a sell order, and vice versa. Thus, the Cloud is ideal when it comes to filtering between bullish and bearish market phases.
Spotting market trends
When using the Ichimoku indicator to ride trends, it’s important to understand when the trend is over and when a potential reversal signals a trade exit. Overall, the Ichimoku framework is a very solid, all-in-one indicator that provides a lot of information at once. The Ichimoku indicator definitely has its place with traders who decide to follow trading strategies such as trend trading. It is encouraged to combine the Ichimoku indicator with other tools such as basic support/resistance principles, price action and chart pattern.
To sum it up, here are the most important things you have to know when it comes to trading with the Ichimoku indicator:
- Traders often use the Cloud to identify the long-term trend direction and usually trade in the direction of the Cloud.
- The Cloud also acts as support and resistance during trends. But when price enters the Cloud, it signals a shift in momentum.
- When the Conversion line crosses above the Baseline, it can signal the shift towards a bullish trend (a buying opportunity)
- During a trend, the Conversion and Baselines act as support and resistance
- Traders usually trade in the direction of the Conversion and Baselines
The very best way to learn how to use the Ichimoku cloud is to open an account with Exness and start trading on the demo account. This can be a lot of fun, especially when the Ichimoku forecasting proves effective. Once you've got the hang of reading the cloud, you can then apply your knowledge to the real account to start targeting real financial results worthy of your time.
Prove you can do it first on demo
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