How to Use Ichimoku Cloud in Forex
The Ichimoku Cloud provides a clear market trend direction to the traders and helps them make market decisions accordingly. It also provides traders with the support and resistance levels in the market that result in identifying ideal entry and exit price levels. In our article, we will dive deeper into the concept of the Ichimoku Cloud and how traders can apply it while trading.
What is the Ichimoku Cloud?
The Ichimoku Cloud includes a set of technical indicators that help traders identify the market’s resistance and support levels, trend direction and momentum. The Ichimoku Cloud indicator takes the currency pair price’s multiple averages on a chart and uses the graphical representation to create a cloud that forecasts where the prices will observe their resistance or support level.
Types of the Ichimoku Cloud pattern
1. Bullish Ichimoku Cloud Pattern
This pattern occurs during an uptrend where the currency pair prices are above the conversion line (which is the mid-value of the lowest and highest currency pair price in the last nine periods). When this pattern forms, the conversion line is above the base line (which is the mid-point price in the last 26 periods). Both of these lines trend upwards in the market with constantly increasing prices, making the cloud a bullish signal for traders. As the prices start trading above the cloud, it signals traders to place buy/long orders in the market due to the continued uptrend.
2. Bearish Ichimoku Cloud Pattern
This pattern occurs during a downtrend where the currency pair prices are below the conversion line. In turn, the conversion line falls below the base line (the mid-value price of the lowest and highest currency pair price in the last 26 periods). Both of these lines trend downwards in the market with constantly decreasing prices, making the cloud a bearish signal for traders. As the prices start trading below the cloud, it signals traders to place sell/short orders in the market due to the continued downtrend.
How to calculate the Ichimoku Cloud?
1. Calculate the conversion and base Line
As the first step, calculate the Conversion Line, also called the Tenkan Sen and the base line, also called the Kijun Sen. Both Conversion Line and Base Line provide traders with the support resistance levels of the currency pair that help them identify the ideal buy or sell price levels. Conversion Line = 9-period high + 9-period low / 2 Base Line = 26- period high + 26- period low / 2
2. Calculate the leading Span A line
Then calculate the Leading Span A, the line which is used to measure the market momentum and confirms traders the entry/exit levels based on support and resistance levels. This line is also called the Senkou Span A. Leading Span A = Conversion line + Base line / 2
3. Calculate the leading Span B line
The next step is to calculate the Leading Span B, also known as the Senkou Span B, the line that works with the Leading Span A to form the cloud (called Kumo) that provides traders with the actual support and resistance price levels. Leading Span B = 52- period high + 52- period low / 2
4. Compute the lagging span value
The last calculation is that of the Lagging Span, also known as Chikou Span, which is ascertained by plotting currency pair closing prices for 26 periods in the past from the most recent candlesticks. This helps traders identify the market momentum and trend reversals, if any.
- The area between Leading Span A and Leading Span B is the cloud that provides traders with the support and resistance levels which in turn provide them with the ideal sell and buy price levels
- When the Leading Span A line is above the Leading Span B line, it indicates a bullish trend and signals traders to place buy/long orders
- When the Leading Span A line is below the Leading Span B line, it indicates a bearish trend and signals traders to place sell/short orders
Combining these five given indicators together provides traders with the complete Ichimoku Cloud, where each of these indicators provides some unique information about the currency pair price movement.
Ichimoku Cloud Trading Strategy
1. Wait for an uptrend breakout
To trade the Ichimoku Cloud, you must wait for the currency pair prices to trade above the cloud in order to recognize a bullish trend. As the cloud highlights the support and resistance levels, a price breaking above the cloud would enable traders to place buy orders in the uptrend. If the price breaks below the cloud, it will signal traders to exit the market due to the expected downtrend.
2. Wait for the Conversion Line and Base Line Crossover
When the price breaks above the cloud, it must be followed by the Conversion Line crossing the base line from above. This would confirm the bullish trend in the market. If you are looking at short/sell signals, wait for the conversion line (CL) to cross the base line (BL) from below during a downtrend to confirm the bearish market sentiment.
3. Enter trade right after the crossover
As soon as the CL crosses the BL from above and prices continue to trade above the cloud, it sends traders a signal to enter a trade right at the opening price of the succeeding candlestick.
4. Place the stop loss order
You can place the stop loss order right below the lowest price of the breakout candlestick, after which the market changes its direction.
- Place stop loss at the low of a bullish candlestick in an uptrend
- Place stop loss at the low of a bearish candlestick in a downtrend
5. Place a take profit order
After fixing your stop-loss order, you can place our take profit order right when the CL line crosses the BL line from below to lock in potential gains. At this point, you can also exit your trade if the market moves against your favourable decision (downtrend).
Trade the Ichimoku Cloud today to identify trend directions
The Ichimoku Cloud helps traders with ideal entry and exit levels after indicating the forecasted market trend. You can start trading the Ichimoku Cloud with several other indicators to confirm market analysis through Blueberry Markets and experience a smooth trading process. Sign up for a live trading account or try a risk-free demo account.
How to Use The Accumulation/Distribution Indictor in Forex
The Accumulation/Distribution (A/D) indicator can determine buying and selling pressures of a currency pair as it helps identify the relationship between the currency pair's price and volume.
What is Commodity Channel Index?
The Commodity Channel Index (CCI) is a technical indicator that can identify overbought or oversold levels in market conditions as well as potential trend reversals and trade signals.
Top Fundamental Trading Strategies You Should Know
Fundamental trading strategies are popular among traders who want to make informed investment decisions based on real-world data and events rather than solely on technical analysis.
How to Use Martingale Strategy For Trading
The Martingale strategy acts as a popular high-risk trading strategy used in various financial markets including Forex and stocks.
What is The Forex Linear Regression?
Forex linear regression enables you to predict future price movements by comparing the current and historical currency pair prices.
Top Advanced Forex Trading Strategies You Should Know
Advanced forex trading strategies are perfect for experienced forex traders.
What is The Oscillator of Moving Average in Forex?
The Oscillator of Moving Average (OsMA) is a technical indicator that helps in determining a trend’s strength in the forex market.
What Are Bear and Bull Power Indicators?
Bear and bull power indicators in forex measure the power of bears (sellers) and bulls (buyers) to identify ideal entry points.
How to Trade With The On Balance Volume Indicator
The On Balance Volume (OBV) indicator analyses the forex price momentum to measure the market’s buying and selling pressure.
How to Use The Alligator Indicator in Forex Trading
The Alligator indicator can identify market trends and determine ideal entry and exit points based on the trend’s strength.
How to Use Inside Bar Trading Strategy
Inside bar trading offers ideal stop-loss positions and helps identify strong breakout levels.
What is the Martingale Trading Strategy in Forex?
The Martingale trading strategy increases the possibility of winning a trade in the forex market.
How to Use The Forex Arbitrage Trading Strategy
Forex arbitrage trading strategy allows you to profit from the difference in currency pair prices offered by different forex brokers.
The Beginner’s Guide to MQL5
MetaTrader, as a platform, has built-in functions that assist in technical analysis and trade management while also allowing traders to develop their own indicators and trading strategies.
How to Use DeMarker Indicator For Forex Trading
Every trader needs to know precisely when to enter or exit a forex market.
How to Use The Accelerator Oscillator For Forex Trading
The Accelerator Oscillator indicator helps detect different trading values that protect traders from entering bad trades.
A Forex Trader’s Guide to Awesome Oscillator
When you understand market momentum, you can better identify market reversals.
What is Money Flow Index?
The Money Flow Index can analyse the volume and price of currency pairs in the market.
What is The Ichimoku Kinko Hyo Indicator?
The Ichimoku Kinko Hyo indicator provides traders with the market’s current momentum, direction and trend strength.
Top Pullback Trading Strategies
Pullback trading strategies provide traders with ideal entry points to trade along with the existing trend.
What is High Wave Candlestick?
The High Wave Candlestick pattern occurs in a highly fluctuating market and provides traders with entry and exit levels in the current trend.
What is the Parabolic SAR indicator?
Identifying market trends becomes easier with the Parabolic SAR indicator as it provides the ideal entry and exit signals in strong trending markets.
What is Currency Correlation?
Currency correlations help trade multiple currencies in the forex market by identifying the market trends of each currency pair.
Price Action Trading Strategy
A Price Action Trading Strategy helps find ideal entry and exit points depending on expert opinions, news announcements, or technical indicators.
Average True Range
Average True Range (ATR) helps in identifying how much a currency pair price has fluctuated. This, in turn, helps traders confirm price levels at which they can enter or exit the market and place stop-loss orders according to the market volatility.
Moving Average Crossover
The Moving Average Crossover is a valuable tool to find the middle price-point of a trend in forex trading. When currency prices crossover their current moving averages, it helps traders identify the favorable buying or selling points for the currency.
What is the Bullish Engulfing Candlestick?
Bullish Engulfing Candlesticks helps in identifying an uptrend reversal in the market. This candlestick pattern stands out because a trader does not need to wait until the entire pattern is completed to enter a trade.
How To Trade The Gartley Pattern
The Gartley pattern helps identify price breakouts and signals where the currency pairs are headed. The pattern is also widely used in the forex market to determine strong support and resistance levels.
How to Trade Forex With NFP V-Shaped Reversal
A Non Farm Payroll (NFP) V-shaped reversal refers to a sudden increase or decrease in the currency pair prices right after an NFP report is released.
Candlestick Patterns: Top Candlestick Charts Every Trader Should Know
Candlestick patterns depict the price movement of assets in a graphical manner. Candlestick patterns also enable traders to predict market behaviour.
What is the Evening Star Candlestick Pattern?
Evening Star Candlestick Patterns help traders identify ideal exit levels in the forex market by signalling a slowed upward momentum and strengthened downward momentum.
Pennants Pattern: How to trade bearish and bullish pennants
Pennant Patterns work as a continuation signal in the forex market and help identify the ideal entry and exit price points
How to Trade Forex With Renko Charts
Renko Chart is a technical indicator that provides strong market trend directions by filtering out minor price movements
What are Ascending and Descending Triangle Patterns?
The Ascending and Descending Triangle Patterns confirm continued trends in the forex market.
How to Identify Cup and Handle Pattern in Forex Trading
The Cup and Handle Pattern is a technical price chart that forms the shape of a Cup and a Handle, which indicates a bullish reversal signal.
What is the Head and Shoulders pattern?
The Head and Shoulders pattern is a trend reversal indicator that predicts bullish to bearish and bearish to bullish reversals in the forex market.
What is the Hammer Candlestick Pattern?
Hammer Candlesticks enable traders to identify potential market reversal points, determine the ideal time to enter the market and place buy or sell orders accordingly.
What is The Opening Range Breakout Strategy
The Opening Range Breakout (ORB) Strategy involves taking forex positions when the currency pair prices break below or above the previous day's high or low
Morning Star Indicator
The Morning Star Indicator helps identify strong trend reversals in the forex market and enables you to take trade position entry decisions accordingly.
How Does Stochastic Indicator Work in Forex Trading?
Stochastic Indicator helps traders identify overbought and oversold market conditions that substantially lead to market reversals.
Favourite Fib Fibonacci Retracement
Fibonacci retracement strategies help traders identify the market's support and resistance levels, trend reversal points, and entry and exit decisions.
Heikin Ashi Candlestick Pattern
The Heikin Ashi Candlestick pattern is almost the same as the traditional candlesticks, with one big difference—the former is an averaged out version of the latter.
Multiple Time Frame Analysis in Forex
By monitoring different currency pairs in different time frames, you can make your Forex trades more successful and profitable.
What are Bollinger Bands?
The Bollinger bands can help identify overbought and oversold market conditions, protecting you against placing any orders that could lead to losses.
Andrew's Pitchfork Trading Strategy
Andrew's Pitchfork is a Forex trading strategy that can predict protracted market swings and help you in identifying potential market trends that can indicate potential exit and entry points.
Fibonacci retracements are one of the most popular methods for predicting currency prices in the Forex market. Predicting upward or downward market movement can help traders with accurate price analysis for exiting or entering the market.
Trading in Volatile Markets
Forex volatility is the measure of how frequently a currency's value changes. A currency either has high volatility or low volatility depending on how much its value deviates from its average value.
The ABCD pattern
One of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time.
The Bearish Gartley Pattern
The Bearish Gartley pattern was introduced in 1935, by H.M. Gartley in his book, “Profits in the Stock Market”. The pattern helps Forex traders in identifying higher probabilities of selling opportunities.
The Bullish 3 Drive pattern
The Bullish Three Drive pattern in Forex trading is a rare pattern that gives traders information about the Forex market's potential at its most Bearish point, and in turn, suggests probabilities for a market reversal.
What is the MACD Indicator?
The Moving Average Convergence Divergence (MACD) indicator helps traders quickly identify short-term trend directions and reversals in the forex markets. You can use the MACD indicator to determine a currency pair price trend's severity and measure its price's momentum and even identify the bearish and bullish movements in the currency pair prices.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.