TRADING RUSH
The Ichimoku cloud indicator is popular for its ability to help traders execute disciplined trades. Its complex appearance is caused by five different lines, including the conversion and baseline which provide entry signals for buying and selling. Traders should only take trades when price is above or below the cloud, as this can help identify the direction and strength of the trend. Using the lagging span line is optional but may indicate a strong trend. Combining the Ichimoku cloud with a support and resistance strategy, and other indicators like the MACD and Bollinger Bands can increase one’s chances of success in live markets. Traders should not solely rely on any given strategy to be 100% successful and should manage their money properly.
Understanding the Ichimoku Cloud Indicator: A Comprehensive Guide for New Traders
Introduction: Why is the Ichimoku Cloud Indicator So Popular Among New Traders?
For many new traders, the world of technical analysis can be overwhelming, with numerous chart indicators to choose from. However, some indicators have gained more popularity than others. Among these indicators, the Ichimoku Cloud Indicator stands out. Despite its complicated appearance, it is called the best indicator for new traders. In this article, we will learn why it is so popular, how to use it, and the famous trading strategy built around it.
The Ichimoku Cloud Indicator: What It Looks Like And What To Expect
At first glance, the Ichimoku Cloud Indicator looks like a big mess. It is made up of five lines, a blue Conversion Line, a red Baseline, a green Lagging Span, and two other lines that form the cloud. The Cloud may appear very confusing, but it gives more information than other simple indicators. Although it may seem intimidating, it is straightforward to understand and easy to use the indicator.
How to Use the Ichimoku Cloud Indicator
The Conversion Line in the Baseline
The Conversion Line and the Baseline are two lines that give us entry signals. They are essentially two moving averages. The blue line is called the nine-period moving average, and the red line is the 26-period moving average. They calculate their values differently, so even if you plot an ordinary moving average and these two lines, they will still show different average values.
The Cloud
The Cloud is a group of lines with varying names that are not necessary to know. All you need to remember is that it is called the Cloud. It helps identify the trend’s direction, something new traders often struggle to understand.
The Lagging Span
The Lagging Span is an optional line that doesn’t give any entry signals. It displays the price value pushed back. When the market is in a strong trend, the Lagging Span is away from the current price. When it is close to the current price, the price is in a weak trend. Most traders ignore using this line on their chart.
The Ichimoku Cloud Trading Strategy
The Ichimoku Cloud Trading Strategy is simple. When the price is above the Cloud, only look to buy. When the price is below the Cloud, only look for selling opportunities. Do not take trades when the price is in between the Cloud. Only take trades when the price is above or below the Cloud.
The Conversion Line and the Baseline Give Entry Signals
If the price is above the Cloud, and the blue line is crossing above the red line, it is a buy signal. When the price is below the Cloud, and the blue line is crossing below the red line, it is a sell signal. The entry point is at the crossover.
Using the Lagging Span
The Lagging Span’s value is just the price value pushed back. If the Lagging Span line is away from the current price, the market is in a strong uptrend. If it is very close to the current price, the price is in a weak trend.
Important Points to Note
The Ichimoku Cloud Indicator works best when the market is trending. If the market is ranging, the Cloud will generate many false signals. If the Cloud looks messy, avoid trades. The Cloud is easier to read when the market is not in a range.
Do not take trades when the price is between the Cloud. If you want to increase the win rate of this strategy, use the 200-period moving average to find the long-term trend. Or use multiple timeframes to find strong support and resistance.
Combining the Ichimoku Cloud strategy with a simple support and resistance strategy can increase the win rate. The MACD and Bollinger Bands strategy tested previously may also work, although too many lines can make your chart look confusing.
Using the Ichimoku Cloud on a higher timeframe can provide detailed information on the overall trend’s direction. If the price is above the Cloud on a higher timeframe, only look for buy opportunities, and if the price is below the Cloud on higher timeframe, take sell signals on a lower timeframe.
Conclusion: Ichimoku Cloud is the Best Indicator for New Traders
Although the Ichimoku Cloud Indicator may look complicated, it provides new traders with a disciplined approach to trading the markets. The five lines on this indicator show more data and provide more signals than other simple indicators. The Ichimoku Cloud Trading Strategy is simple, yet very effective. When combined with a simple support and resistance strategy, it can increase a trader’s win rate. It may be the best indicator for new traders who are not yet proficient in technical analysis, but this indicator would benefit experienced traders as well. However, it is essential to remember that no strategy works 100% of the time, and proper money management is crucial for any trader’s success.
