What is Ichimoku that is known by traders as an effective trading tool? This trend trading tool helps traders identify price action quickly through visual elements. However many traders still feel overwhelmed looking at all the lines and information the Ichimoku indicator provides. This then leads to traders often misinterpreting Ichimoku signals. In this article, Learn Forex Trading will introduce the Ichimoku tool and show you step-by-step how to use the Ichimoku indicator to make optimal trading decisions.
What is the concept of Ichimoku?
It can be said that Ichimoku is the most comprehensive “all-in-one” indicator among many indicators known today. It contains everything a trader wants in an Indicator. So what is Ichimoku?
Ichimoku (short name for Ichimoku Kinko Hyo ) is an integrated technical analysis tool built on candlestick patterns on the Japanese candlestick charting platform. The person who wrote the Ichimoku method is Goishi Hosoda.
Ichimoku is a set of indicators designed to be a separate system.
These indicators have the role of determining resistance or support, determining trends, and determining entry points for traders.
Ichimoku does this by taking multiple averages and plotting them on a chart. At the same time, it also uses these metrics to calculate a “cloud” that attempts to forecast where prices may find support or resistance in the future.
Because of its versatility, Ichimoku is a separate system and does not need to be combined with any indicator or method.
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Default parameters of Ichimoku cloud

However, these parameters are configurable based on traders’ preferences. Because the Ichimoku Cloud provides several trend signals, some traders consider the Ichimoku Cloud to be the only technical indicator needed on the chart.
Ichimoku Kinko Hyo is a trend identification system based on moving averages. Charts using Ichimoku contain more data than a regular chart, so it helps us see a more complete picture of price action.
Instructions for using Ichimoku rattan
The Ichimoku indicator is made up of 2 different components:
- Conversion Lines and Baselines: They look like moving averages on a chart.
- Ichimoku Cloud: The most commonly represented cloud of the indicator because it is the most prominent.
There are two ways to use the Ichimoku Cloud to identify general trends:
- First, the trend is up when the price is above the cloud, down when the price is below the cloud, and sideways when the price is in the cloud.
- Second, the uptrend is reinforced when Path A (blue line) goes up and above Path B (red line) and will create a blue cloud. Conversely, a downtrend is strengthened when Path A (blue) goes below Path B (red) and will create a red cloud. Because the Ichimoku cloud is shown 26 days into the future, it also provides a glimpse of future support or resistance.
Main ingredients of Ichimoku
Tenkan-Sen is the blue-colored conversion line, the Tenkan-Sen conversion line represents the midpoint of the last 9 candles.
It is calculated according to the following Ichimoku formula : [(9-period high + 9-period low) / 2]. Due to the very short-term nature of the indicator, Tenkan-Sen is usually not used on its own, but only in conjunction with other elements of the Ichimoku Cloud indicator.
Kijun-Senor the baseline (red), represents the midpoint of the last 26 candlesticks.
It is calculated according to the following formula: [(26 period high + 26 period low) / 2]. Kijun-sen is almost always used in conjunction with Tenkan-Sen to help effectively gauge changes in price direction and generate trade signals.

Boundaries of the Ichimoku Cloud
Senkou Span A This is the cardinal line A, the green limit of the cloud.
It represents one of the two boundaries of the cloud, and it is the midpoint between the Conversion Line and the Baseline: [(Conversion Line + Baseline) / 2]. This value is plotted 26 periods into the future and it is the faster cloud boundary.
Senkou Span B is shown in the red limit of the cloud, this is the key line B, which represents the second Cloud boundary and is the midpoint of the last 52 price bars: [(52 periods high + 52 periods low) / 2]. This value is plotted 52 periods into the future and it is the slower Cloud boundary.
Chikou Span is the other line in green, the current period’s closing price is predicted for the previous 26 periods.

Once plotted on a chart, the area between the two major lines A and B is called the Kumo (cloud).
Breaking through the cloud and the subsequent move above or below it will suggest to the trader a better, more probable trade.
Ichimoku’s application
What can the Ichimoku indicator be used to determine? As follows:
Identify trends and corrections according to Ichimoku Cloud
Prices, conversion lines, and baselines are used to identify trends more quickly and frequently.
It is important to remember that uptrends are identified when the price is above the cloud and the cloud is green. A bearish signal is identified when the price is below the cloud and the cloud is red.

In short, identifying trends and corrections is quite easy to understand when using Ichimoku Cloud as follows:
– Price moves above the cloud, or a blue cloud shows an uptrend
– Price moves below the cloud or the cloud is red indicating a downtrend
– Price moves within the cloud (momentum), indicating a sideways trend
– If the color of the cloud changes from green to red. There is a correction within the uptrend range.
– If the color of the cloud changes from red to green (flow in trend). That suggests a correction within the downtrend range.

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Identify support and resistance levels in Ichimoku Cloud
Trading with support and resistance is one of the most popular and successful trading methods in the foreign exchange market today. How to identify support and resistance levels:
– Span A of the first line supports an uptrend
– Span B of the 2nd line supports the uptrend
– The first Span A line of the resistance level with a downtrend
– Span B line of the 2nd line is a resistance level with a downtrend
Besides, when using any level as support or resistance. The important thing traders should remember is:
– Key support/resistance levels are often tested by the pair without being broken. The stronger it gets, the harder it is for the price to break through that level.
– Once a level has been broken its function will change. So a broken support will become a new resistance. When a resistance is broken, it becomes a new support level.
Strong signals for buying/selling appear above the cloud
– If the conversion line (Tenkan) crosses the baseline (Kijun) from below, this is a sign to buy.
– The conversion line (Tenkan) crosses the basic line (Kijun) from top to bottom, this is a sign to sell.
Weak signals for buying/selling inside the cloud
– If the conversion line (Tenkan) crosses the baseline (Kijun) from below, this is a sign to buy.
– Conversely, if the conversion line (Tenkan) crosses the baseline (Kijun) from above, this is a sign to sell.

Conclude
What Ichimoku is is scary at first glance. But once you learn it, every trader will see its usefulness. If the price is below the Ichimoku Cloud, the trend is down. Look for Short positions and avoid Long positions. When the price is above the Cloud, the trend is up. Look for Long positions and avoid Short positions.
However, you will still need to control risk with a stop loss. And also find a way to exit the trade profitably to ensure the safety of your account and don’t forget to manage your capital. Currently, MT4 software of Brokers all have this Ichimoku indicator available. And it is no coincidence that more and more traders are using Ichimoku for their trading strategies.
Hope Learn Forex Trading article is useful to you. Wishing you safe and successful transactions!