How to use the advanced Ichimoku Trading Strategies – Different market trading mechanics under one roof

This is a very simple and profitable trading system that everybody should learn! Watch our latest video to find out the advanced Ichimoku trading strategies and how can they help you get better results.

Advanced Ichimoku trading strategies – Ichimoku secrets

Hello and welcome to Diary of a Trader. Today’s video, we’re going to go over the Ichimoku System. Now, if you have TradingView, you can go to Indicators and then just type in I-C-H-I for Ichi, and then, Ichimoku Cloud, and that’s what we want. And this is what the Ichimoku System looks like. This is listed as an indicator in many charting platforms, but it’s actually a trading system itself, and there’s really four main components that we want to look at, and it looks confusing, especially if you’ve never used it or seen it before, but it is actually a very simple and a very, very profitable trading system that everybody should learn. In fact, for me, this is how I learned to trade profitably, was by learning how to use the Ichimoku System because it applies so many different market trading mechanics under one roof.

Now, the first thing we’re going to look at in the Ichimoku System, the first type of component is the Cloud. Now, the cloud, or they call it, the Kumo, the cloud is two averages that we took off the screen, that are thrust forward in time. And so, the first line here, this is one of the second components is we have the conversion line. Now, the conversion line, it looks like a moving average and it is a moving average, but it’s not taking the average of the close of a Candlestick. It’s taking the median, the middle, the average of the candlestick. It’s an average of an average. So, this is for a nine period. And then, the second component here is the baseline, and this would be like our slower moving average. So the baseline is the slow average and the conversion line is the fast average. And then, we have the lagging span. But we’re going to get to the lagging span. When I first showed you the cloud, all right, you see that it shows green and red and the question’s come up, well, what determines the cloud? Well, if I turn off the candlesticks, then we see what the cloud is. It is the conversion line and the baseline moved forward in time, okay? So, if we notice this little bit right here, is the inside of this activity. So, when the conversion line is above the baseline, they shade the color green to indicate that this is a bullish cloud and then it’s moved forward 26 periods, okay? Conversely, once we start to trade down, like we do here, and looking at the conversion line below the baseline here, that means we’re in a bearish environment up ahead. Now, the last component is the one that is probably the most confusing. I like to turn this line black because it’s hard to see, I think. And I’ll turn the lines a little thicker, too. The lagging span is probably the most misunderstood part of this system, but as I think, arguably, the most important. The lagging span is just the current price action moved back. Now, if we change from candlesticks to a line, then you’ll see what I mean. You can see that the line here, this is just the current price, that lagging span is just the current price action, but it’s moving behind us, okay? And now that you understand what these lines do and what all of these activities are that are happening with the system, now we need to apply it to learn how to trade it.

Now, there are very simple rules. The first rule is that if price is inside the cloud, we do not take a trade. Remember how I said that there’s a lot of types of trading mechanics that the Ichimoku system does? If you’re familiar with Bollinger Bands or Bollinger Band Squeezes, this is indicative of a squeeze. If price is inside the cloud, that means that we are in a squeeze. And so, if price is trading inside the cloud, we don’t take a trade. The second principle, and let’s say we want to go long. Let’s say we want to take a long trade, we want to buy. Then, the rules for that are that price needs to be above the cloud, the conversion line, the blue line needs to be greater than the baseline, which is the red line, and the lagging span needs to be above the cloud, okay? So, as an example, if I do a market replay and I’ll just set it right here, and price is moving and we are approaching the inside the cloud. We already know what price is going to do, but this kind of gives us a good example of what happens during a live trade. Now, what are our conditions for going long? Price needs to be above the cloud, it is. The conversion line is above the baseline, that’s also a condition. But, is the lagging span above the cloud? Yes. And we also, I forgot to mention that we want the cloud in front to be green as well. So, we want a green cloud, price above the cloud, conversion line above the baseline and the lagging span, the black line, above the cloud. And let’s see if that’s what happens. Now, right then, is where all of our conditions were met. The cloud ahead turned green, conversion line is above the baseline, price is above the cloud and the lagging span is above the cloud. And then, that’s when we would have taken a long entry. Then, the question is, well, where do you exit? And there’s a lot of different theories and philosophies and strategies on when should exit a trade, but probably one of the most effective ways to know when to enter a trade or exit a trade, when you’re long, is when you see the lagging span start to trade inside price. So, if you start to see the lagging span, if the black line starts to get inside candlesticks, then we know we should probably exit a trade. We know that we’re going to have some movement that’s not going to keep going anymore. Alternatively, if you start to see price cross below and hold below the baseline on a retest, that’s when you can probably exit along. That’s another option.

But the rules for taking a short, are just the inverse of that. And so, if we want to take a short trade, we have the same rules we need to apply. So, to take a short, we need price to be below the cloud, the cloud in front has to be red and the conversion line needs to be below the baseline. So, if I hit play here, we’re in the cloud, we’re not taking a short, although we do get some warning signs. We get some warning signs that something’s about to change, once the cloud chart starts to change color, and we see that the conversion line is below the baseline. So the cloud ahead is red, but no other conditions to short have been met yet. And so, this is why we don’t take a trade in the cloud because we don’t know what’s happening. It hasn’t been determined. Now, on that big Candlestick, that was where we take a short. The lagging span is below the cloud, the cloud in front of us is red, and the conversion line is below the baseline, so that is a good short opportunity. The question’s going to ask, “Well if I missed this trade, where can I get back in?” Well, generally when you break out of a cloud, the first kind of retest higher of the baseline is a good area to re-enter a short. You’ll often find resistance at the bottom of a cloud and at the baseline. You can see how the pullbacks work very well. And then, really as long as the lagging span is still below price and not trading inside of it, we’re still safe to be entering in pullbacks against the conversion line, or the baseline. It’s a very, very profitable system. And what is very important about the system, probably more than anything else, is that it tells us when not to take a trade and it keeps us from entering a trade too early, so we don’t experience a false breakout. Because if you look at this system and you look at how many times price breaks above the cloud, if you only went, there’s a lot of people who will tell you that, “Well, you can just take a trade once price breaks above or below the cloud.” That rarely works very well. You would get stuck in a lot of churning trades, you’d be entering and exiting positions too fast. The Ichimoku System keeps us from taking bad trades, and it keeps us in good trades. Thank you for watching this video, and we look forward to you watching the next. Thank you!