There are only a handful of Ichimoku Trading Signals and they are straightforward at that. In this article we cover the two major trading signals you can get from any time frame Ichomoku chart. Before getting into the Ichimoku signals I am going to proffer the number one rule for trading with technical indicators of any kind – you will never make a nickel from trading an indicator – never. Price is the only thing that matters. The only purpose of a technical indicator is to help you decipher the significance of a price bar or a candlestick. How easily we forget this rule, and seldom without bad consequences.
The primary trading signal from the Ichimoku Kinko Hyo chart is the Kumo Breakout trade. You go long when the first candlestick breaks out and closes above the Kumo, and you go short when the first candlestick breaks out and closes below the Kumo.
This American Airlines daily chart shows 3 Kumo breakout trades and all of them would have been profitable with any reasonable exit strategy. You can fine tune the Kumo Breakout Trade without adding much additional complexity.
The Kumo (Cloud) to the right of the last price bar shows likely future support/resistance. The Kumo color can also be interpreted as sentiment. A green Kumo is a “bright” future and a brown Kumo is a “dark” future. When the future is bright and the Kumo Breakout Trade direction is bullish then take the close of the first candlestick to make the breakout. When the future is dark you may consider waiting for an additional one or two more candlesticks to close above the Kumo before taking the trade. A short trade would be the opposite.
The second fine tuning addition is to get confirmation from the Chikou Span before taking the trade. For a bullish breakout you would want the Chikou Span above the price bars at the time of the breakout. For a bearish trade you want the Chikou Span beneath the price bars.
Tenkan Sen – Kijun Sen Cross
The Tenkan Sen – Kijun Sen Cross (TK Cross Trade) is an earlier trade setup than the Kumo Breakout. And as you can see from the chart example this setup most often occurs when the price bars are on the “wrong” side of the Kumo. Here is the same American Airlines chart with the TK Cross Trades shown in yellow.
There were two trades and both were profitable with any reasonable exit strategy. The setup is the TK Cross. You would take the trade when the candlestick closes on the “right” side of the cross.
The TK Cross Trade is objective so you can use a signal in the opposite direction as an initial stop-loss point. That makes the TK Cross subject to whipsaws but that is simply the cost of doing business.
These two trading signals make the Ichimoku chart overlay an Ichimoku trading system with objective signals.