The Art of Ichimoku, Part 2 explained by professional Forex trading experts the “The Art of Ichimoku, Part 2” FX trading team.
Trading in the Clouds – The Art of Ichimoku, Part 2
The part of Ichimoku that just absolutely jumps out at us when we apply it to our charts is the area known as ‘The Cloud,’ or called ‘Kumo,’ in Japanese. It’s one of the areas of this indicator that makes the field of study so interesting. It’s constantly changing – in area and in width.
Kumo actually just consists of two lines. The area in between the two lines is shaded and it’s considered to be a moving range of support during uptrends; and resistance during downtrends. Many traders will look to Kumo when setting stops on trades that were initiated by the Trigger/Base Line Crossover.
One of the more important tasks that Kumo can help traders with lies in its ability to denote the trend of the currency pair. When a pair is trending up, making higher highs and higher lows Kumo will function as support – sitting underneath price as the currency pair trades higher.
And when a pair is trending down, making lower highs and lower lows Kumo will function as resistance residing above price as the currency pair heads lower. These periods will show Kumo printed as RED on the chart by default (please see below).
One of the more unique aspects about Kumo is that it’s built for 26 periods in advance. If you observe current price on any chart while Ichimoku is applied you will notice that for 26 periods ahead – Kumo is already plotted and waiting for price. However – keep in mind that this has absolutely no forecasting value whatsoever.
How to Interpret Kumo
Now that we know what Kumo is – let’s discuss how traders are using it.
One of the more valuable functions of Kumo is its ability to show traders the potential ‘strength,’ of the Trigger/Base Line crossover. When this crossover occurs, traders will notice it’s location in regards to Kumo and grade the strength of the signal accordingly. Let’s walk through an example together.
On the GBP/USD chart below – there are 3 BULLISH crossovers taking place, all of which are circled in RED. Let’s walk through each of the signals to see the way that traders would generally interpret these crossovers.
The Art of Ichimoku, Part 2 Conclusion
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