Ongoing TC / Ichimoku Analysis

I continue to monitor my FX charts against the Ichimoku Cloud. The results of this ongoing analysis are summarised below:

TC Epiphany: 4 hr FX trend trading is most successful when price on the EURX and USDX index charts is:

  • unencumbered of the Tenkan-sen and Kijun-sen lines AND
  • free of the Ichimoku Cloud on the daily and 4hr charts AND
  • congruent with Cloud position on both the 4hr and daily Ichimoku charts.
  • trending in the same direction on both the 4hr and daily Ichimoku charts.

Epiphany Explained: That when price on the Indices, USDX , EURX or on the individual currency pair in question is:

  • trading sideways AND is embedded within the Ichimoku cloud on the daily chart OR
  • caught within, or embedded, in the moving average crosses, that is, the Tenkan-sen and Kijun-sen lines OR,
  • divergent on the 4hr and daily Cloud charts with respect to position of price either above or below the Cloud
  • trading up on one time and down on the other time frame Cloud chart then,
  1. 4 hr trend trading is more likely to be choppy & 4 hr TC signals will be less frequent AND
  2. any 4 hr TC trend signal is likely to be less reliable, and, thus, these 4hr trend trades are less likely to be successful and
  3. trend trading is more likely to be successful off shorter time frame 30 min charts during the late London and US trading sessions.

The implications of this finding, if it continues to hold as valid for me, are quite monumental. It is a well known fact that currency pairs do not trend ALL of the time. To be able to have some form of advance warning and/or confirmation that one is entering a period of, quite possibly, choppy markets and lower probability trend trading is a HUGE advantage. To have a warning that 4 hr trend trading will most likely be choppy and that shorter time frame trading might be more successful is a huge advantage to help protect against trading losses. One does not need to trade all of the time. It would be far wiser to wait until the Ichimoku reflects less compromised trading conditions and, then, to trade any TC trend signals given off during that time period.

The word ‘Ichimoku’ means ‘one look’. I am finding that by having one look at the charts using this indicator that this is helping me to put my TS trend signals into greater context!

My focus and attention will be as follows:

  • Shorter time frame trading focus: when price is embedded in daily Ichimoku ‘cloud’ or woven into the Tenkan/Kijun lines or when correlation between daily and 4hr charts is absent. This is difficult for me in the Asian trading zone though.
  • 4hr trading focus: when price is trading freely under or above daily Ichimoku cloud and, also, not embedded in Tenkan/Kijun lines. When there is correlation of price and Cloud location between the 4 hr and daily Ichimoku charts.

The Ichimoku Cloud on the daily Indices chart is proving to be an invaluable tool to help warn me about impending choppy markets!

Final Reflection: I see my trading as very similar to surfing. I live near a beach so this is rather appropriate for me. Surfboard riders will sit out in the surf and wait for the best waves to catch. They won’t paddle for every single wave. They will often sit tight, letting the smaller choppy waves pass and will simply wait for the better wave to come through before investing the energy needed to catch the wave. My trading system is much like this. In a similar way I’ve got my trading system (board) and I then sit and wait and assess the market moves (waves). I won’t take every trend (wave). I will wait for the better trend (wave) to come through before taking the trade. By ‘better trend’ I mean the trend on the pair that has the maximum alignment of all key factors in my trading system. There are also times when riders won’t even bother going into the surf because of the poor or choppy conditions. In the same way there are times when I won’t go into the markets due to the excess choppiness. Whilst riders might check their weather and surf reports, I check a slightly different weather map, the Ichimoku Cloud!