8 Min Video: About TopstepTrader
- Introduce you to the Ichimoku Cloud and it’s parts.
- Show you how to determine future price movements using the Ichimoku Cloud.
- Show how using the Ichimoku Cloud could tell you EXACTLY where to enter a trade.
- Demonstrate a successful Ichimoku Cloud trade we made just recently.
The Parts of the Ichimoku Cloud
Placing the Ichimoku Cloud on your chart may seem to turn your chart into a mess of spaghetti, but understanding it’s parts will greatly help you find a simpler way to read the markets.
The Cloud
The cloud is the green and red tinted “ribbon” across the chart. The cloud shows where the most probable support and resistance is based on past performance. The most interesting thing about this part of the Ichimoku cloud is that it also makes a prediction as to the FUTURE price action.
Consider if the price is placed above the cloud. If the price falls or retraces, chances are that it will hit the top of the cloud and bounce back, if not the top of the cloud than the bottom.
The placement of these clouds is based on the average of the next two lines we will talk about, shifted, into the future.
The Turning (Fast) Line
The turning line is calculated by taking the average of the high and low of the past 9 periods (bars) and dividing that by 2.
I tell you this just for the simple fact you know what it is.
What you really need to know is that this line acts as support and resistance as well as the Cloud and the other parts of the Ichimoku.
We call it the fast line because this is the part of the indicator that changes the most, considering it only tracks the last 9 periods.
The Standard Line (STD)
The STD line is a slower moving line. It takes the highs and lows of the last 26 periods (bars) and divides that by 2 as well. A slower moving part of this indicator. This line also acts as support and resistance.
The Lagging Line
The Lagging Line is the part of the Ichimoku Cloud that I use to confirm or deny with a little more certainty of the direction of the price.
This line is the current price action, shifted back 26 periods (bars).
If this line is above the cloud, as well as the current price action, then the probability is better that the market is bullish and will continue in that direction.
Ichimoku Cloud Trading Signals
Consider this situation if the price action is ABOVE the cloud.
- If price action retraces back to the cloud, and the lagging line is above the cloud, then a good entry would be to go long just before the price hits the cloud.
- In the same respect with the lagging line above the cloud, the Turning line and the STD line could also be considered good entries if price action is above them and retracing back.
- If price action in these situations are trading within the cloud, and not above or below, then the next best entry would be at the bottom of the cloud.
- If the price action ends up below the cloud, then the probably of the trend changing bearish is beginning to increase.
- If price action continues lower for 3 bars below the cloud, probability is higher for going short.
- If the Lagging line crosses below the cloud, then chances are EXTREMELY high that the market will continue lower.
What Time Frame Do I Use?
I always start with the Daily time frame to get the overall market sentiment. Then I move into smaller incraments.
1 Hour, 30 min, 15min, 10min.
If three of the four time frames signal the same market direction, I will take a trade in that direction.
I call this looking at Fractal time frames.
When trading, we use probabilities to determine the market direction. Using the Ichimoku Cloud on multiple time frames well easily help you determine, with better probability, of what direction the market will be going.
Our Recent Ichimoku Cloud Trade
In our TopstepTrader Funded Account we made a successful trade using the Ichimoku Cloud strategies we talked about today.
Consider how the market has been acting as of recent.
With the S&P 500, DOW and NASDAQ trending down in a volatile bear market in early 2016, the ZB 30 Year Bond future has been trending bullish.
On the daily chart, the ZB 30 Year Bond is trading above the cloud, also indicating a bullish pattern.
Confident in a continued bullish trend and confirmed support on the bottom of the Ichimoku Cloud we bought at 160’09, just one tick before the bottom of the cloud.
Into the trade, 3 hours later, we continued to hold our position until our exit 30 ticks above entry!
Follow your trading rules. Use the Ichimoku Cloud to make your trading simpler. Check multiple time frames and manage your risk!
Hope it helps,
Good Luck Team!
William