Hello Forex Lens subscribers and members this is Jon Morgan.
I have not actually recorded a video yet on how to use the Ichimoku system because we do use that frequently in our trading it's a very Very well known trading system.
It's very Easy to learn and trade and it's probably one of the best Systems in my opinion that if you have not been profitable trading then trade the Ichimoku system because it teaches you a whole bunch of Technical analysis components that in under one roof And it will greatly help with your learning and your trading Alright, so let's just kind of go through how to set this up.
Well Very easy.
I just have a new chart here nothing on it And I just go to indicators and if I just type in I C H, I or ichi, I look for here ichimoku cloud and Then this goes on our screen here.
Now the default settings are fine.
There's nothing wrong then it's just that I The colors or the length of the lines or the width bother me a little bit so what I like to do is never change these don't ever change those but I Like to make the conversion base and lagging span lines you know one or two thicker and Then the lead lines We don't need those But we do need the backgrounds plotted and those are fine All right.
Now, let's just kind of go through what the Components are of the Ichimoku system Well, the first one is probably what you notice right away about this is it's called the cloud alright and the the cloud is made up of two lines and We're gonna see those actually the ones that we'd kind of remove they're called lead one or lead to Their actual names are Chikou span A and Chikou span B Right.
There's Japanese names for all of these but We have since tried to just call them something different but I think it's it's relevant to know what the original Japanese names are because this is a Japanese trading system and If you ever wonder why these settings are the way they are it's because the gentleman who created this prior to world war 2 Now this guy he was a hard-ass because he took all of this past charting data in Japan and on Rice charts and he had all of his interns basically go through every single past chart To analyze certain kinds of behaviors and then after he had all of his interns do the work for him He he put it together slap the label on it and there was the Ichimoku system, but oddly this really didn't come to the states or to the west rather until really the 1990s and we got got pretty popular in the 2000s And it's and it's still around and it's it's an indicator, but it's really a trading system But but it's it's so successful and a testament to its to its staying power Is that that it's it's everywhere and we never want to change these these values because these were the original Values that that were set because the Japanese market at the time traded on a six-day Trading week not a five-day.
Like we've always had it was a six-day just little trivia there so the components again We see the cloud that is called the kumo or just the cloud and the cloud is is fairly Easy to to look at and understand how it forms as soon as we identify what these other lines are We see these two first kind of averages so if I get rid of the cloud Get rid of all these other lines so we can isolate these we have the conversion line or the Tenkan-Sen or We have the base line, which is the kitchen center.
And these are not regular moving averages.
These are averages of the average.
So This line is not like normal moving average you can see that a flattens out sometimes because it takes It's still it's still an average period of time so the baseline is done over Over a 26 past candlesticks but it takes the average of the candlesticks not the clothes like like most moving averages they Calculate the clothes and then put it these are taking the averages of the candlesticks So the mean or the mid of each candlestick, that's what if that's what these that's how these eg muku Lines are formed.
So that's the that's the conversion line and the base line, but then the cloud How the cloud is formed And we'll get rid of the price here the cloud is just it just takes The conversion line and the base line Its displaced a little bit.
So it's this place like it's moved up or down in this case.
It's moved It's moved up a little bit But it's just these lines are thrust forward in time 52 periods So the the the senko span or just the leg the lead the leading? Lines, these are at the bottom and the top of the cloud are just the past movement of The conversion of the baseline move forward and then they color the clouds in so whenever the conversion line is greater than the baseline the The space between them is colored green, whatever the conversion is below the base base line it's colored red and Because we do really don't need the lines to see that that's the only reason why I take them off You can certainly keep them on there But I don't feel like we need to see the lead lines when we've already got the cloud there okay, and Then the last component Is probably the most misunderstood Component and that is called the leg expanded.
I think the legging span is the most important component Well, I don't know how you could it is very important And for whatever reason there's a lot of muku tutorials out there that disregard it like oh we don't need to use it Yeah you do it is there for a reason and it is it is absolutely stupid that a lot of people do not utilize it but The lagging span.
It's also it's also called the the Chico span.
It is the current price action So again if I just remove all of this here oops It is the current price action But it's it's moved back 26 periods, so You can see this better if I use a line So if I use a line chart instead candlesticks You can see that it's just that that's all the all the legging span is is the current price action It's just it's just the current price action is may it align? 26 periods back alright and so those are all the components of The Ichimoku system But now we need to know well, how do we trade this? What is what is what is the point of all of these things? Well, how do we how do we trade it? I actually like to call it a legging span black Easier to see for me at least.
Oh Forgot to put the cloud well, there are rules that we need to follow because the most important part of the Ichimoku system is not Where you are taking trades, it's telling you when not to trade ok If you're familiar with Bollinger Bands and you know about the squeeze, you know When that when that when the – when the – the upper and the lower bands start to constrict that's called Its forming a squeeze etcetera in consolidation Before John Bollinger even came up with that We've we've known about this the Japanese Japanese had this in the Ichimoku system whenever price is inside the cloud We do not take a trade We do not trade when we are inside the cloud All right, that is telling us that there is no clear direction that we're in an area of consolidation We don't take trades in the cloud.
It's very easy Whatever time frame you're trading on if you see prices inside the club, don't trade it very easy But let's say we're inside the cloud.
Let's move back here.
Let's go to let's go to like a four-hour chart Well now we can go down here But let's say we're inside the cloud here floating around, you know above and below it.
I want to see a better one sometimes the dailies are two on some instruments use the for our Trying to find a good example to use Well, what we'll use this one here, all right, so we're inside the cloud right here on the 4-hour chart maybe actually 1 hour Yeah, that's a little better will do this is a good example, so we're inside the cloud we don't take a trade But when do we take a trade if we're gonna take a long trade if we're gonna go long the rules are very simple first rule price must close above the cloud a Second the cloud ahead Must be bullish or green Third is that the conversion line must be greater is greater than the baseline and Fourth is that the lagging span? is greater or crosses above the cloud Okay, so those are rules for going long Rules for going long price must be above the cloud the cloud ahead must be green and Or bullish the conversion line must be greater than the baseline and the legging span is greater or it crosses above the cloud All right and so this is what I mean if we do a market replay and I put our price action here and this brings us back in time.
And so we can we can replay past price action.
I Really encourage everybody to do this Find a chart you don't trade that you're not familiar with try your best not to look ahead in the future do a market replay And then and then kind of mock trade it how you how you would if it was live So here we're in the cloud.
We're not taking a trade.
There's no clear trade because we're inside the cloud But if I pause this I have a condition met now to be looking there.
There's a signal that saying ok We may have a change happening we're either entering consolidation or we could see a Change in the trend where we could get a breakout for a long trade.
And what was that? That was when the conversion line crossed above the baseline that's called a they also call that a TK cross because the conversion line is also the the tankenson and the base line is big is the the key Jensen and So they call this a TK cross So that's cross that tells us that there may be a change happening soon so price is still moving and I see price moved up, but it didn't close above the cloud We're still inside the cloud it got to the top there, but it didn't close above now right there Right there.
We did close above the cloud.
All right, we have three conditions met Three conditions met four taking a long trade.
The cloud ahead is green The conversion line is above the baseline price closed above the cloud What one is missing the lagging span is not above the cloud yet? once the lagging span goes above the cloud then we can take the trade and that is the power of the of the of the lagging span of the Ichimoku system Because we're showing that the current price action is moving beyond Past future projected price Prices based on based on a series of average of averages that sounds really confusing just know that when the lagging span finally moves outside of the cloud that is usually the final trigger that tells you we're good to go and That's the thing that most issue mukha trading systems for whatever reason choose to disregard They're just a lot of Ichimoku trading systems Tell you just okay? whenever you close above or below the cloud you just take a trade and that is That's a very dangerous way to trade don't do that.
I hit play.
So I'm waiting for a close right now I would enter so you'd enter a trade right there and We can observe.
Well, we know what happens already because we watched this play out And we say we can speed this up a little bit and Notice as we're moving when price comes down Where is it finding some support? It's usually finding support right on the conversion line, correct? That's a sign of a strong trend when you see prices Move out of the cloud and then they come back to the conversion line Generally, the first one or two tests of that conversion line is enough of a signal That we're in a that we're gonna have a strong trend for a little while Certainly when we start to cross below though when we start to cross below the conversion line and hold below it and we can't find support at the baseline that is telling us that the trend is weakening and and sometimes some people say that the area that you take profit is when the teet when there's another TK cross when the Tankinson crosses below the kijun center or the conversion line crosses below the base line and that is where you would take profit okay, and so we're really watching this play out and Another another Area for taking profit would be when the lagging span is no longer above price and it starts to come back in and actually I just missed something is that If we enter into situations like we just saw here That's not what I wanted See where price crossed a below and then we start to see a little bit of consolidation here as we're approaching the cloud People often ask well, when do I take a trade well if you see situations like this where prices is trading above and below the Conversion and baselines and the conversion at baseline are even sitting on top of each other whenever the liking span is trading inside price that is an early warning sign that trends are gonna change but if the lagging span breaks out Above price again that soon you start taking a long trail again All right Now what we want to do next is we want to identify a short trade And so how do we how do we trade a short signal? And we can do that Back Hmm Drag that along with me We can use this Okay, so that was our long trade rules our short trade rules are going to be just the inverse of this so short trade rules First is that price must close below the cloud? Cloud ahead must be bearish Or red Conversion line is Below the baseline and For is the legging span is? below or crosses below The cloud alright Oops The view Okay, so in this scenario We see we won't do a market replay But we can see that prices in the cloud and then as price drops out of the cloud Well, you know what the leggings banned oh, yeah Well, the legging spans already out that that was our signal if we're trading inside the cloud here We'd wait to get outside the cloud as long as the the leggings fan was outside and below the cloud We're still good for that long trade And and if this is just like taking the long, you know You look at you look at your price action and how it's traded notice that in strong trends You're going to find some a lot of support off the conversion line.
You'll also find it on the base line and and on top of the the Above the the top of the cloud the cloud itself actually acts as a strong Strong support zone and so if I'm looking right now, this is actually pretty good example.
We're live right now and I'm looking at the dollar yen.
And the dollar yen on the hourly just turned into a short opportunity Okay.
So this is this is the seventh of June at 6:00 p.
Central time and Taking a short here is probably going to be a pretty lucrative trade.
Oh wait, you know what I take that back Okay, sometimes these sometimes you do want to see Yeah, okay so the is the cloud ahead red here's the shirt signals that we're looking for is the cloud ahead red Yes is Priced below the cloud.
Yes is the conversion line below the base line.
Yes is the legging span below the cloud.
Yes, it is So this right here is a short trade If we would have gone short when we first broke out We would have experienced a lot of ping pong around and whipsaws.
And and why why bother let let other people Figure out where this is going to go.
We just need to get on the same train and the final signal the final trigger for Going long or going short depending which way we're going with each muku system.
Is this lagging span? the lagging span is Is the is the real kind of hidden trick of a chi muku systems that win this guy finally crosses Below or above the cloud.
That is the final trigger that you need To move because very very rarely Will you get a break out of a cloud with the lagging span and then the market decides to turn the opposite direction That could happen But right now we have on the hourly all four conditions met for going short, all right That is the Ichimoku system.
I Think this is most effective The longer the time frame you go the more effective the system is going to be and that really goes with anything I'll tell you that Anything longer than a week Daily charts for the Ichimoku system are phenomenal You you get tremendous signals doing it this way But I'll tell you that One little trick where you can violate the rules is on a weekly chart okay on a weekly chart often all you need in the Ichimoku system Just the legging span in the cloud Because changes things are not often very sporadic and nor do they move, you know a crap-ton like they do on shorter time frames, but signals on the Ichimoku system on weekly charts often All you need is a break of the cloud and a close above or below with the legging span Moving above or below it as well.
Okay That is often all you need for signals on the weekly chart And you should look at multiple time frames with a Chuco system You can get phenomenal signals with the Ichimoku system by by having Multiple time frames.
So if I'm looking at the hourly chart I see that that is a that is a good signal if I look at the 4-hour chart You know, what? Am I looking at? I'm looking at we're right on top with a cloud.
I could to start drifting into it If I look at it on the daily We're still above the cloud but we're entering in some weak areas.
Why? Because the oh, you know what maybe if I put there? Why reentering weak areas? Well the the conversion line cross below the baseline we didn't find support at the baseline Legging span is trading inside price So that is telling me that we have weak conditions in the dollar yen going going ahead and that we have a sell signal so Anyways, I hope I didn't go too long-winded with this.
I Hope that you found it helpful and useful because we do use this during our trading sessions this is this is kind of the basis for what we take a lot of trades off of in addition to the Gangi ama tree that I do do but This system is very effective It is proven to work But if the Ichimoku system doesn't work for you, that's your fault You're either your they're not following it or you're you're not following it or you're over over trading or over leveraging or you're trading on to shorter timeframes hourly to daily Ichimoku system, that's the way to go one hour for our eight-hour charts Daily charts.
That's the way to go trust the system Trust the system When I've started using it, I still lost money on it because I didn't trust it I thought I still thought that even though I was losing money all the time that I knew better than a tried-and-true Method that's been around since World War two prior to World War two, you know Obviously, I know much more as a traitor who's new and losing money.
I know that that this system doesn't work Boggles my mind why I did that and I know some of you have gone through that too way where you don't trust the system Enough where you think, you know what is best but really it's just your psychology and motions getting out of trades so follow it like a machine and it'll steer you into the direction of profitability and Successful trading and and that'll set up a good stage for you in your trading career Hope to see you all in The trading room here in the future whenever you're watching this I hope we have been giving you some good trade advice education and ideas and Hope this finds you well, and we'll talk to you again, bye-bye.