Ichimoku - An Entire Trading System in One Indicator

The Ichimoku report is back by popular request. This article will outline current trade setups regarding Ichimoku rules.

 

If you’re new to the Ichimoku Indicator, it is a one-stop indicator. Ichimoku is famous for the clouds that appear on the chart. 

 

The clouds are the distinguishing factor of this indicator. Many traders who use Ichimoku successfully feel the clouds alone allow them to see the potential future moves with greater clarity. There are other aspects that you will be introduced to that will give you further insight on support, resistance and entry levels. 

 

Here is a breakdown of the five Ichimoku calculations for those who need to know and their function:

Tenkan-Sen / Trigger Line (Tan line)

 

(HighestHigh +LowestLow)/2, for the past 9 periods. Tenkan is the faster moving average and will be used by us as a trigger line when it crosses above or below the Kijun Sen.

Kijun-Sen / Base Line (Light Blue line)

 

(HighestHigh +LowestLow)/2, for the past 26 periods. Kijun is the slower moving average and will be the base line

Future Senkou A / Leading Span A (Orange line)

The average of the Tenkan Sen or 9 period moving average and the Kijun Sen or the 26 period moving average. The distinctiveness of this is that it is plotted 26 days ahead of the last complete trading day. 

 

Future Senkou B / Leading Span B (Blue line)

The highest and lowest price of the last 52 day added together and then divided by two. This is also plotted 26 days ahead of the last complete trading day. This is similar to a 50% retracement line over the last two months.

Similar names, very distinct functions.

The space in between the Senkou Span A & Senkou Span B is always colored and pushed 26 periods in front of current price. The color of the cloud will depend if the Senkou Span A or Senkou Span B is on top. When the cloud is orange, it is showing you that the Senkou Span B is on top which means that price is under the 52 period price average. This is a bearish sign and you should look to sell when signals are generated. When the cloud is blue, it is showing you that the Senkou Span A is on top which means that price is above the 52 period averages. This is a bullish sign and you should look to buy when signals are generated. 

 

Chikou Span (Green line)

Today’s closing price plotted 26 periods behind. If this line is above price from 26 periods ago, we are in a well-defined uptrend. 

 

When looking to enter into a trade, here are the entry rules I look to buy the pair. The opposite will apply for short trades:

-Price is above the Kumo Cloud

-The trigger line (Tenkan Sen) is above the base line (Kijun Sen) or has crossed above

-Chikou line is above price action from 26 periods ago

-Kumo ahead of price is bullish and rising

-Entry price is not more than 150 pips away from the Tenkan Sen / trigger line as it will likely whip back to the line if we enter on an extended move.

If you would like assistance with the right trade size for your account when a signal is generated, you can find an easy formula here.

 

Buy USD/JPY

It is often believed that Ichimoku is best used on the Asian currencies like the JPY. Also, the Bank of Japan took a drastic step last week in weakening their currency in a manner never before displayed. JPY has been on a constant fight to weaken their currency without the success they hoped for but last week they had the Minister of Finance & Minister of State for Economic and Fiscal Policy all state their commitment to weaken the currency to support their export based economy . Because the Bank of Japan wants to weaken the Yen to boost their export based economy and the USD is seen as the safest currency as the Eurozone sorts out its fiscal mess we have underlying conditions supporting this Ichimoku signal.

 

Created with FXCM’s Marketscope/Trading Station

Technically speaking, the JPY is one of the weakest currencies on the daily chart in aggregate against the 100 day moving average.

This pair also meets the Bullish Ichimoku rules because price is above the cloud and corrections have stayed above the cloud. What I like most is how there was a push off the monthly pivot on 10/18/12 to the upside. With the signal or Tenkan Sen above the base line or Kijun Sen the bullish sentiment remains.

Lastly, the kumo cloud is bullish and as a leading indicator is pointing upward with the Senkou A above the Senkou B. 

 

Buy USDJPY @ Market

Stop @ 79.00

Limit @ 82.50

BUY CHF/JPY

As QE Infiniti came across the wires in September the CHF has been a shining star. When we put the consistent strength of the Swiss Franc (CHF) against the weakening JPY as mentioned earlier a clear trend is displayed with Ichimoku that highlights a potential trading signal. 

 

Technically speaking, a trend line that has been honored many times since mid-summer signaled this trade along with other Ichimoku rules all checking off. Expect the bulls to fight back as price approaches the rising trend.

The kumo cloud guides us upward guidance and the Kijun Sen (blue base line) acted as a strong form of support last week when the CHFJPY tested 0.8450 and then bounced nicely.

The Tenkan Sen and Kijun Sen both point to buying which allow us to approach CHFJPY with a buy at market with a stop at the top of the cloud and a limit in line with the trend line with a good 1: 2 risk: reward ratio.

This is one of my favorite trades given the strength of the CHF and the potential JPY weakness in months ahead.

Trade size is key when going after a big move like this despite the probability. 

 

Buy CHFJPY @ Market

Stop @ 0.8350

Limit @ 0.8800

Exotic Trade: SHORT USDSGD

Recently, you were introduced into the exciting world of exotic Forex pairs and how to trade them with a steady hand. You will often find some of the better technical set ups in exotic pairs so they naturally belong in the article that gives you purely technical trading signals.

 

Created with FXCM’s Marketscope/Trading Station

Price has consistently remained below the cloud since mid-2012. All Ichimoku rules are met and clear us for a sell trade.

Short Entry USDSGD @ 1.2200 or less

Stop @ 1.2400

Limit @ 1.200

 

Going forward you will be updated on how these trades are doing. Naturally, these are longer term trades as we look at the Daily Chart and are seeking to follow the defined trend. We will do two reports a month and you may find that few or none of the trades have closed out yet as price makes it way to either the profit target or the stop exit.

---Written by Tyler Yell, Trading Instructor

To contact Tyler, email tyell@fxcm.com .

To be added to Tyler’s e-mail distribution list, please click here.

Want to learn how to better identify the trend? Save hours in figuring out the overall trend by taking our Moving Average Trading course.

Take this free 14 minute “Moving Average” course presented by DailyFX Education. In the course, you will learn how to filter worthwhile trends, identify support and resistance, and find which entries give you the highest probability trades.

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Forex - Euro off lows as U.S. consumer confidence deteriorates

© Reuters. Euro pares losses against dollar after U.S. consumer confidence data, Fed ahead

Investing.com - The euro pulled back from session lows against the dollar on Tuesday as data showing that U.S. consumer confidence deteriorated this month tempered expectations for higher interest rates.

EUR/USD was last at 1.1056, off 0.28% for the day, from lows of 1.1022 ahead of the report.

The Conference Board, a market research group, said its index of consumer confidence fell to 90.9 this month from a downwardly revised 99.8 in June. Economists had forecast a reading of 100.0.

A less optimistic outlook for the labor market, as well as uncertainty and volatility in financial markets prompted by the situation in Greece and China sapped investor sentiment, the report said.

Other reports earlier Tuesday showed that U.S. house price growth stalled in May, while activity in the service sector picked up this month.

Demand for the dollar continued to be underpinned ahead of the start of the Federal Reserve’s two day policy setting meeting later in the day.

Investors were looking ahead to Wednesday’s Fed statement to see if policymakers would give any indication on the timing of an initial rate hike.

Fed Chair Janet Yellen has said the central bank could raise rates as soon as September if the economy continues to improve as expected.

The U.S. was to release figures on second quarter growth on Thursday, which were expected to show that the economy rebounded following a contraction in the first quarter following an unusually harsh winter.
The dollar eased against the yen, with USD/JPY last at 123.60, holding below session highs of 123.8.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.28% to 96.89, remaining above Monday’s two week lows of 96.28.

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EUR/USD Technical Analysis: Resistance Now Above 1.10

Like any other market, forex makes some really nice swings in price, which when identified can give you an opportunity for an excellent trade, notes Pete Southern of LiveWire Market Blog.

Swing trading is the art of catching a changing trend and riding it out in the other direction or “swinging” for use of a better phrase! The key to being successful with swing trading is to have a solid method for picking direction changes. There are various ways to do this but for this article I will cover my own favorite. It comprises of a few steps, but by following each one you can be more certain the patterns you are looking at will work out.

Identify Support or Resistance
First and most importantly, you cannot swing trade forex properly unless you can identify clear areas where the price may react from. This is how the big boys play the game, and if done correctly, it can show you excellent areas to watch for entries.

Draw some horizontal lines on your charts. Connect some previous highs and lows. Look for areas where the price has reversed a couple of times in the past, highlight them with a horizontal line and leave them on your chart. These will form the blueprint for your swing trading.


Click to Enlarge

Obviously as time progresses and the more often these lines have been tested in the past, the stronger and more important they become. What you should be looking for is an area that has been tested at least twice, and if it’s within a larger range (like the middle line above) then tests from both directions for support and resistance is essential. These are the areas at which you will be looking to trade from.

Now there are some traders who will just go shorting into resistance or longing into support. In my opinion this is a hit and hope strategy. You will be undone time and time again doing this, and even with good money management, the strain on your emotions will eventually take your edge.

Once the price is heading into one of these areas, it is time to drill down onto a shorter timeframe chart and start watching the patterns.

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Elliott Wave Theory

The Elliot Wave Theory represents a development from the well-known Dow theory. It relates to any freely traded property, liabilities, or goods (shares, obligations, oil, gold, etc. ). The Wave Theory was proposed by accountant and business expert Ralph Nelson Elliott in her study titled The Wave Principle published in 1938.
After he‘d retired and a significant illness were discovered in her organism, Elliott started to observe stock markets and the charts inside the hope of comprehending the market behavior. After he‘d performed a big work, he concluded the market, as like a product of predominant psychology from the masses, followed some laws.
The Elliott Wave Theory is founded on a particular cyclic laws in human behavior psychology. Consistent with Elliott, the marketplace price behavior could be clearly estimated and shown inside the chart as waves (wave is here an explicit price move ). The Elliott Wave Theory says the market could be by 50 percent large phases : Bull Market and Bear Market.
Elliott proposes, also, that each one price moves in the marketplace are divided into :
five waves inside the direction from the main trend (waves 1 to 5 in Fig. 1 ) ;
three corrective waves (waves A, B, C in Fig. 1 ).
The waves are divided into :
impulses that produce a directed trend (bull or bear ) and cause the marketplace to maneuver very actively (waves 1, 3, 5, А, С in Fig. 1 ) ;
corrections (rollbacks ) which are seen as a moving against the tendancy (waves 2, 4, in Fig. 1 ).

Figure 1. A part of bear trend.

In his Wave Theory, Eliott was driven by waves subdivision principle. Which means that every wave is part of a longer wave and it is subdivided into shorter waves itself (Fig. 2 ). Every wave is subdivided into 3 or 5 waves. This subdivision depends upon the direction from the longer wave.

The most principle inside the Elliott's theory is every impulse wave includes five shorter waves and each corrective wave (against the tendancy ) consists of three waves, which may be well seen in Fig. 2. For instance, Wave 1 in Fig. 2 consists of 5 shorter waves since It‘s an impulse wave that creates the tendancy.

The longest cycle, consistent with Elliott, is known as Grand Supercycle that‘s compose of 8 Supercycle waves. The latter ones are each composed of 8 Cycles, etc. For instance, Fig. 2 shows 3 basic cycles. It may easily be seen that impulse waves and also the subsequent corrective waves are proportional. The stronger impulse is, the stronger correction is, and vice versa.

The Elliott Wave Theory is criticized in order because there Isn‘t always a transparent definition of each time a wave starts or ends. Corrections are especially difficult during this regard.

Elliott Wave Theory and Fibonacci Numbers 

Fibonacci Numbers supply the mathematical foundation to the Elliott Wave Theory. Fibonacci numbers play a crucial role inside the construction from the complete market cycle described using the Elliott's waves. Each one of the cycles Elliott defined are comprised of the total wave count that falls inside the Fibonacci number sequence.

Under closer examination of Fig. 2, it‘s possible to notice the complete market cycle consists of two large waves, eight middle waves, and 34 small waves. Similarly, with a bull market, we will see that the bull Grand Supercycle consists of one large wave, five middle waves, and 21 small waves. If we continue this subdivision, we can observe the consequent 89 even smaller waves, etc.

Respectively, a bear Grand Supercycle consists of one large wave, three middle waves, and 13 small waves. In the next sublevel, there will be 55 very small waves, etc.

Figure 2

This principle is normally utilized in the Elliott Wave Theory as follows : movement in a particular direction should continue until it reaches some point in concordance using the summational Fibonacci number sequence.
For instance, when the time, during which the tendancy doesn‘t change, exceeds 3 days, this direction Shouldn‘t reverse till the 5th day begins. Similarly, the tendancy should continue as much as 8 days if this has not changed the direction within 5 days. 9-day trend shouldn‘t be completed till the 13th day begins, etc. This basic pattern of how the tendancy movements could be calculated equally applies for both hourly, daily, weekly, or monthly data. However, this really is just an ideal model, and nobody can get that prices' behavior will certainly be so definite and predictable. Elliott noted that deviations may occur both in some serious amounts of in amplitude and individual waves would hardly develop exactly during these regular forms.

Characteristics of Waves 

Calculations inside the Elliott Wave Theory resemble a road-map. Every wave has some characteristics. These characteristics are depending on market behavior of masses.

Inside the Elliott Wave Theory, a special attention is paid to individual description of each and every wave. Besides, there will be certain laws employed for proportional formations of Elliott waves (Fig. 3 ). These laws enable proper definition of in which the wave starts and just how long It‘s. The wave lengths are measured from high to low from the corresponding wave.

Figure 3

The above mentioned classical relations between waves are confirmed by actual ones having a 10%-error. Such error could be explained through short-term influences of a couple technical or fundamental factors. In whole, the data are rather relative. Important is that each one relations between all waves may take values of 0. 382, 0. 50, 0. 618, 1. 618. By applying this, we will calculate relations between both wave heights and wave lengths. Allow us to consider characteristics of each and every wave :

Wave 1

Happens once the «market psychology» is practically bearish. News remain negative. Like a rule, it is extremely strong if this represents a leap (change from bear trend towards the bull trend, penetration straight into the might resistance level, etc. ). Inside a state of tranquillity, it usually demonstrates insignificant price moves inside the background of general wavering.

Wave 2

Happens once the market rapidly rolls back coming from the recent, hard-won profitable positions. It may roll to almost 100% of Wave 1, although not below its starting level. It usually makes 60% of Wave 1 and develops inside the background of prevailing level of investors preferring to repair their profits.

Wave 3

Is just what the Elliott's followers live for. Rapid increase of investors' optimism is observed. It‘s the mightest and also the longest wave of rise (it cannot function as the shortest ) where prices are accelerated and also the volumes are increased. A typical Wave 3 exceeds Wave 1 by, a minimum of, 1. 618 times, or much more.

Wave 4

Often difficult to recognize. It usually rolls back by less than 38% of Wave 3. Its depth and length are normally not very significant. Optimistic moods remain prevailing out there. Wave 4 might not overlap Wave 2 till the five-wave cycle is really a section of the end triangle.

Wave 5

Is usually identified using momentum divergences. The prices increases at middle-sized trade volumes. The wave is formed inside the background of mass agiotage. At the conclusion from the wave, the trade volumes often rise sharply.

Wave A

Many traders still think about the rise to create a sharp come-back. Though there appear some traders sure from the contrary. Characteristics of the wave tend to be greatly a similar as those of Wave 1.

Wave B

Often resembles Wave 4 greatly and is extremely difficult to recognize. Shows insignificant movements upwards upon the rests of optimism.

Wave C

A robust decreasing wave inside the background of general persuasion that the new, descreasing trend has started. Inside the meantime, some investors start buying cautiously. This wave is seen as a high momentum (five waves ) and lengthiness as much as 1. 618-fold Wave 3.
Unfortunately, Elliott's waves are very well observed inside the old market, but you are rather dimmed for future years. This really is why practical use from the Elliott Wave Theory is usually difficult and requires special knowledge.

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Drawing Trend Lines

Interpreting Trend Lines In Forex Trading

When you have been dabbling with technical analysis in forex trade, It‘s unlikely that you‘d not understand about trend lines. These trend lines are methods on which the complete charting process is predicated and inside a way it forms the backbone of most trading activity across forex markets. In simple terms, a trend line is founded on historical price action and represents the general direction during which the trade is predicted to progress and offer you an idea about potential support and resistance levels.
However, one must do not forget that drawing a trend line could be sometimes very subjective. One sure method of gauging the validity of the trend line is as simple as checking the points they touch as they simply chart the direction of trade. Usually inside an uptrend, a robust trend line ought to be connecting the relatively low points upon the chart. Thus inside a long-term rally, this line connecting all of the lows forms the support line and can be utilized like a floor for trading. Similarly, the reverse is predicted just in case of the downtrend. A robust trend line covers every high, and also the resultant chart ought to be an ideal means of determining the resistance zone for traders.

The Best Approach To Draw Trend Lines

Now we reach the most significant point, how you can draw a trend line that‘s perfect. It is going to be next to utopia if you anticipate even three points to coincide on the chart in one straight line. Normally prices could be trending near the tendancy line with maximum possible points veering as near an aligned line as you can. Different traders might finish up charting varying trend lines by using the same group of price level. The foremost basic kinds of trend lines are the type which are drawn by connecting the points as well as support area inside the course in an uptrend as well as peaks as well as resistance points during a downtrend.
One other issue which you might face while charting these trend lines is more than once you may have to redraw them or revise them when there is any sudden action out there and new highs or lows spring up upon the screen. Thus, flexibility and adaptability are essential while drawing these trend lines. You have to look out for two major highs or lows and connect them to obtain a proper workable trend line in forex trade.

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EUR/USD falls slightly amid mixed PMI

EUR / USD fell slightly on Friday reversing many of the gains in one session earlier, amid mixed data on both continents.

The currency pair traded inside a tight range between 1. 0925 and 1. 0996 before settling at 1. 0976, down 0. 0009 or 0. 08%. To the week the euro gained greater than 1. 3% against its American counterpart, like the Greek Debt Crisis continues to wind down.

EUR / USD likely gained support at 1. 0808 the low from July 20 and was met with resistance at 1. 1198, the high from July 13.


The dollar surged to intraday highs in U. S. morning trading amid positive manufacturing data before paring many of the gains following the discharge of disappointing housing figures. The Markit July PMI index inside the U. S. ticked as much as 53. 8, above last month's reading of 53. 4. Shortly later, however, the dollar moved lower following the U. S. Commerce Department said new home sales plunged 6. 8% in June to 482, 000. Median home prices remained soft at $281, 000.

Elsewhere, U. S. 2016 presidential candidate Hillary Clinton proposed a wave of corporate tax reforms on Friday, including a plan that could nearly double the capital gains tax rate on short-term investments. Clinton, the Democratic Party frontrunner, is likewise proposing increased transparency for stock buybacks and changes to executive compensation.

In Europe, the Markit flash euro zone PMI fell to 53. 7 in July, down given by a four-year high of 54. 2 in June. The decline reflected a slowdown inside the manufacturing and service sectors through the entire zone, in addition to a dip in consumer confidence.

Currency traders await next week's Federal Open Market Committee meeting for further hints upon the timing of the much-awaited interest rate hike coming from the Federal Reserve. Earlier soon, Federal St. Louis president James Bullard said there‘s a 50% chance the Fed will raise rates at its FOMC meeting in September. It came days after Fed chair Janet Yellen reiterated that conditions inside the economy are prone to justify an interest rate hike at some point in 2012. Nearly ten years has transpired because the U. S. central bank last lifted its benchmark Federal Funds Rate. For nearly six years, short-term rates of interest have remained level between zero and 0. 25% since finished from the Financial Crisis.

On Friday, the Fed announced it inadvertently published a staff forecast on its website which disclosed that staff economists anticipate a quarter-point rate hike at some point this year
.
USD / CAD reached a brand new 12-year high at 1. 3102 before falling slightly to 1. 3047.

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Forex Reserves Down by $1. 03 Bilion to $353. 33 Billion

Mumbai : Country's forex kitty shrunk by $1. 03 billion to $353. 33 billion upon the back of the dip inside the core currency property, the Reserve Bank said on Friday.

Total reserves had slipped using a marginal $156. 9 million to $354. 360 billion inside the previous reporting week.

Foreign currency property (FCAs ), the most important section of the reserves, were down 982. 1 million to $328. 93 billion to the week ended July 17, the RBI said in its weekly data.

FCAs, expressed in dollar terms, include the a result of appreciation and depreciation of non-US currencies, such like the euro, pound and also the yen, held inside the reserves.

The country's gold reserves remained unchanged at $19. 074 billion.

The special drawing rights using the International Monetary Fund were down by $39. 6 million to $4. 018 billion inside the week under review, while India's reserve position using the Fund also decreased by $12. 8 million to $1. 303 billion, the apex bank said.

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