Ichimoku trading strategies
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Ichimoku is a finely-tuned, integrated charting system where the five lines all work in concert to produce the end result. We emphasize the word "system" here because it is absolutely key to understanding how to use the various trading strategies we outline in this section. Every strategy covered below is to be used and measured against the prevailing Ichimoku "picture" rather than in isolation. This means that, while a scenario that matches a given strategy may have transpired, you still must weigh that signal against the rest of the chart in order to determine whether or not it offers a high-probability trade. Another way of looking at it is that Ichimoku is a system and the discrete strategies for trading it are merely "sub-systems" within that larger system. Thus, looking at trading any of these strategies from an automated or isolated approach that doesn't take into account the rest of what the Ichimoku chart is telling you will meet with mixed long-term success, at best.
Don't misinterpret the message; the strategies outlined below are very powerful and can bring consistent results if used wisely - which is within the scope of the larger Ichimoku picture. We ask that you always keep this in mind when employing these strategies.
Tenkan Sen/Kijun Sen Cross
The tenkan sen/kijun sen cross is one of the most traditional trading strategies within the Ichimoku Kinko Hyo system. The signal for this strategy is given when the tenkan sen crosses over the kijun sen. If the tenkan sen crosses above the kijun sen, then it is a bullish signal. Likewise, if the tenkan sen crosses below the kijun sen, then that is a bearish signal. Like all strategies within the Ichimoku system, the tenkan sen/kijun sen cross needs to be viewed in terms of the bigger Ichimoku picture before making any trading decisions, as this will give the strategy the best chances of success.
In general, the tenkan sen/kijun sen strategy can be classified into three (3) major classifications: strong, neutral and weak.
STRONG TENKAN SEN/KIJUN SEN CROSS SIGNAL
A strong tenkan sen/kijun sen cross Buy signal takes place when a bullish cross happens above the kumo.
A strong tenkan sen/kijun sen cross Sell signal takes place when a bearish cross happens below the kumo.
NEUTRAL TENKAN SEN/KIJUN SEN CROSS SIGNAL
A neutral tenkan sen/kijun sen cross Buy signal takes place when a bullish cross happens within the kumo.
A neutral tenkan sen/kijun sen cross Sell signal takes place when a bearish cross happens within the kumo.
WEAK TENKAN SEN/KIJUN SEN CROSS SIGNAL
A weak tenkan sen/kijun sen cross Buy signal takes place when a bullish cross happens below the kumo.
A weak tenkan sen/kijun sen cross Sell signal takes place when a bearish cross happens above the kumo.
See the chart in Figure I below for an example of several classifications of the tenkan sen/kijun sen cross:
But wait! Have you checked the chikou span?
With these three major classifications in mind, we will add something else into the equation - the chikou span. As we explained in the section detailing the chikou span, this component acts as a "final arbiter" of sentiment and should be consulted with every single trading signal in the Ichimiku Kinko Hyo charting system. The tenkan sen/kijun sen cross is no different. Each of the three classifications of the TS/KS cross mentioned above can be further classified based on the chikou span's location in relation to the price curve at the time of the cross. If the cross is a "Buy" signal and the chikou span is above the price curve at that point in time, this will add greater strength to that buy signal. Likewise, if the cross is a "Sell" signal and the chikou span is below the price curve at that point in time, this will provide additional confirmation to that signal. If the chikou span's location in relation to the price curve is the opposite of the TS/KS cross's sentiment, then that will weaken the signal.
Entry
The entry for the tenkan sen/kijun sen cross is very straightforward - an order is placed in the direction of the cross once the cross has been solidified by a close. Nevertheless, in accordance with good Ichimoku trading practices, the trader should bear in mind any significant levels of support/resistance near the cross and consider getting a close above those levels before executing their order.
Exit
The exit from a tenkan sen/kijun sen cross will vary with the particular circumstances of the chart. The most traditional exit signal is a tenkan sen/kijun sen cross in the opposite direction of your trade. However, personal risk management and time frame concerns may dictate an earlier exit, or an exit based upon other Ichimoku signals, just as in any other trade.
Stop-Loss Placement
The tenkan sen/kijun sen strategy does not dictate use of any particular Ichimoku structure for stop-loss placement, like some other strategies do. Instead, the trader should consider their execution time frame and their money management rules and then look for the appropriate prevailing structure for setting their stop-loss.
Take Profit Targets
Take profit targetting for the tenkan sen/kijun sen cross strategy can be approached in one of two different ways. It can be approached from a day/swing trader perspective where take profit targets are set using key levels, or from a position trader perspective, where the trader does not set specific targets but rather waits for the current trend to be invalidated by a tenkan sen/kijun sen cross transpiring in the opposite direction of their trade.