Forex Trading With the Cloud: Using the Ichimoku Kinko Hyo Indicator In MetaTrader 4 In 2020
The Ichimoku cloud indicator is a great example of how different Eastern trading can be. It’s no secret that traders worldwide have different styles and goals. But this doesn’t mean that we can’t effectively learn from each other to improve our own Forex experience. Today we are discussing the advantages and technicalities of using the Ichimoku indicator.
Understanding the Ichimoku Indicator
Every trader has a set of their favorite technical indicators. This selection is strongly based on the overall style and strategy, as well as on personal preferences. While some are comfortable enough with a Simple Moving Average, others choose to dig deeper and run multiple indicators at once.
Japanese indicator Ichimoku is often referred to as Kumo Cloud or Ichimoku Kinko Hyo. Although this might sound slightly intimidating at first, don’t worry — you’ll get used to it.
The Ichimoku indicator is a total nightmare for any price action trader. There is just so much going on. But once you get familiar with its elements and learn to see structure in the overwhelming chaos, your trading is going to significantly level up.
Ichimoku indicators are highly popular on the Eastern side of the Forex market. And it certainly takes time for any Western trader to get used to it. So let’s take one step at a time and get to the bottom of how to use this peculiar tool.
Components of the Ichimoku Kinko Hyo Indicator
The very first thing you will want to get comfortable with is the way the Ichimoku indicator looks. As we’ve already mentioned: there is a lot to take in.
There are four elements that are considered Ichimoku indicators. Three of them are Moving Averages set at various periods and a so-called cloud, formed by two additional MAs. Each part of the indicator has its own name in Japanese and can be indicated by a different color depending on your MT4 settings. Below we will discuss each component at its default setting.
The green Chinoku Span line closely mimics the general movement of the price. However, it is set to be displaced to the left by 26 periods. Placed this way, Chinoku Span indirectly serves as a contributing component of the Cloud.
Tenkan Sen, usually represented by a red line, is a Moving Average set at a nine period time frame. This means that it formed by averaging the highest and lowest values within the previous nine periods.
Kijun Sen, the blue line, works just as the Tenkan Sen, but its period is set to 26. And since there are more periods to consider, Kijun Sen takes more time to form and react to the price movement.
And finally the key element of the indicator, Senoku Span aka The Cloud, can be represented by orange or light gray filling. It can also change color from red to green depending on the bullishness/bearishness of the movement.
The first line is formed through averaging highs and lows of both Tenkan Sen and Kijun Sen, and displaced by 26 periods to the right. And the second line averages highs and lows of the 52 period time frame and it is also shifted 26 periods to the right. These two lines tend to keep near each other and actively interact on a regular basis.
Now that you can recognize the elements of the Ichimoku indicators, let’s get into putting them to work.
How Do You Trade With Ichimoku Kinko Hyo
There are several strategies that involve the indicator Ichimoku in one way or another. It is generally advised to get fully familiar with how this indicator works before attempting either one of the available methods.
Some strategies take into consideration all the elements, while others just look at one of them. For example, The Cloud strategy will require traders to only pay attention to the Senoku Span formation.
In this approach traders need to wait for the moment when the Cloud surpasses the price movement to enter the trade. The direction of the break itself will also suggest the direction in which to open the position. Exit wise there are multiple options. However, Japanese Forex professionals tend to advise against the trailing stop losses and recommend to pay attention to the indicator itself to end the trade.
The most popular solution within the Cloud strategy is to wait for the Senoku Span to head back to the price movement and break it once again in the opposite direction. It is important to point out that while the indicator and most strategies based on it originated in Japan, it doesn’t obligate you to trade with region specific currencies. Go with any instrument of your choice, just keep in mind that decent volatility can definitely be an asset.
Advantages of the Ichimoku system
Mastering the Ichimoku cloud indicator might be challenging, but it is definitely worth it. There are several significant advantages to making Ichimoku a part of your trading arsenal.
First, as we already mentioned, this indicator is pretty universal and can be used to trade absolutely any pair. What’s more, the implementation of Ichimoku goes far beyond the foreign currency exchange and proves just as effective across most markets, including stocks, futures, options, commodities and more.
Then, this particular indicator by itself provides a good amount of information to its user. Once you learn to correctly interpret the Kumo Cloud, your analysis process will be sped up several times. The more you trade using Ichimoku the better you will get at immediately noticing promising setups and creating multiple strategies on the go.
Additionally, the variety of Ichimoku indicator PDF user guides is a great proof to the variety of options we have when dealing with the indicator. A trading method can be worked out from the Ichimoku directly or combined with other systems and indicators to create something entirely unique.
There are virtually no limitations on how to use the Ichimoku Kinko Hyo, as long as you take a good amount of time to get to know it in detail. You can also consider practicing using it in demo mode before jumping into the actual trading.
At this point you have a general understanding of what trading with the Ichimoku indicator looks like. Now it will make sense to spend a few moments on how to install the indicator to your MT4.
How to Install Ichimoku Kinko Hyo Indicator for Metatrader 4
Metatrader 4 is known for its selection of highly useful indicators. Most of the ones you’ll need are going to be included in the default set. Now, depending on your broker, Ichimoku might or might not be a part of the deal.
However, you can easily install it by yourself. All you will need is an indicator file that usually comes in the form of a zip. You can ask your broker for a trusted source of indicator files or search around yourself. Make sure to download your indicators from trustworthy sources to avoid any potential harm to your PC.
Once you’ve got the zip file, go ahead and extract all the contents into your desired location. Keep it simple and try to abstain from renaming the files. This will allow you to easily locate everything later on.
The following procedure is the same for adding absolutely any other indicator. In your MT4, go to the File menu and select Open Data Folder. When it opens, find an MQL4 folder and then open an Indicators folder inside.
In the Ichimoku folder you will have several items, among them there is going to be a source file labeled with the name of the indicator. The easiest way to spot it is to look at the Type column and look for MQL4 Source File type.
Simply drag the MQL4 file from the Ichimoku folder to the Indicators folder and you are basically done. Head back to the MT4 and refresh the list of all indicators by right clicking on it or restart the platform altogether.
As long as you had a proper indicator file to begin with and followed all the steps correctly, you should now have the Ichimoku available on your terminal. And since this is out of the way let’s briefly discuss some technicalities of how to use the newly installed indicator.
Using Ichimoku Kinko Hyo Indicator in MT4
Most of the indicators come with a specific default setting and at the same time have an option to be adjusted. The Ichimoku cloud indicator is one of them.
Depending on your trading goals and style you might need to bring slight adjustments into how the Kumo Cloud forms. For instance, traders who only use the Cloud to make decisions, can choose to remove the red, green and blue lines. This way, a chart becomes way less cluttered and easier to read.
The settings window for each indicator opens as soon as you apply it to the chart. There you will see an option to adjust the style of the chosen tool, including the line density and color. You can also change the parameters of the indicator in case the default ones do not suit your trading strategy.
In case the indicator is already applied to the chart, but you wish to adjust the settings, simply right click on the main screen. Then choose the tool you need to customize in the indicator list and the same window will pop out.
When you are just starting to use any new indicator, it is best to trust the default setting in terms of number of periods. However, as you become more experienced and come up with your own trading method solutions, feel free to play around and see what works best for you.
Forex trading in general is very flexible. This is one of the main reasons why people from different backgrounds can succeed in it. As long as you are devoted to continuous learning and know how to properly manage your risks, experimentation will cause no harm to the process. In fact, you might actually discover one or more profitable approaches and use them all along your trading career.
Just before we wrap up, let’s take another couple of moments to discuss combining Ichimoku with other MT4 indicators.
Ichimoku in Combination with Other Indicators
It is true that Ichimoku Cloud is pretty self-sufficient for the most part. However, it is always a good idea to cross-check and back up your decision by data from several indicators.
The main rule of successfully mixing and matching several indicators is to avoid two different tools serving one purpose. As we know, indicators can be roughly divided into four categories: trend, momentum, volatility and volume.
Since Ichimoku consists of Moving Averages, it is categorized as a trend indicator. So we most probably will not need any additional trend indicators such as MACD or Parabolic SAR.
Additionally, you don’t want your chart to be cluttered. In all types of trading, especially the short term ones, attention to detail is crucial. So if the overflow of indicators is affecting your vision and limits you from thinking clearly — try to cut extra tools down to the minimum.
With that said, what are the best indicators to use with Ichimoku? Trend indicators always go nice with the momentum ones. In case of Ichimoku you can easily consider adding RSI (Relative Strength Index) to the chart to confirm the direction of the momentum.
In case you are new to the Ichimoku trading, you might use it in combo with other trend indicators just to see how the two or more interact together. This way you will get a more in depth picture of what’s happening during the analysis stage.
But for the trading process itself, it is better to stick to just a couple of indicators, each from a different category, to get more reliable results.
Forex Ichimoku Kinko Hyo in Summary
To sum up let’s briefly go over everything we have talked about today.
The Ichimoku Cloud indicator can be referred to as Ichimoku Kinko Hyo or Kumo Cloud
The Ichimoku can be used for any trading style with any currency
There are four components to the indicator and the different ways they interact with each other can provide different trading signals
You can choose from a variety of trading strategies that are based on this tool or come up with your very own way of using it in your trades
The Indicator is fully customizable: you can adjust the style settings, the formation parameters as well as remove some elements to clear out the chart
Ichimoku is very self-sufficient, but in some rare cases you have an option to confirm it or back it up by using additional indicators
Remember to keep learning and practicing as you proceed on your Forex trading journey. There are so many tools and methods to choose from and it is simply unwise to ignore them. Go ahead and try the Ichimoku Cloud in action, maybe it is the indicator you needed all along.
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