TC + Ichimoku: The Analysis

November 12, 2012
I made a significant break through with my trend trading, TradeCharting (TC) system during 2012. This involved evaluating my TC signals against the Ichimoku Kinko Hyo Indicator. I refer to this discovery as my TC Epiphany. Many would be aware that I have been watching the Ichimoku Kinko Hyo Indicator for a while now. I usually refer to this indicator as simply the ‘Ichimoku’ or the ‘Cloud’. Whilst not looking to add further indicators to my successful TradeCharting system, I’m always on the lookout for anything that can improve on the success of TS. Well, after watching this indicator, in tandem with my TC system, I believe that the Ichimoku Kinko Hyo Indicator will be able to help me with my trend trading. My so called ‘Epiphany’ moments center around use of this Ichimoku Kinko Hyo Indicator.

TradeCharting’s Ichimoku background: 

I use the Ichimoku Kinko Hyo on my charts in the following way. I only use the ‘Cloud’ and the two, essentially, moving average lines that are referred to as the ‘Tenkan-sen’ and ‘Kijun-sen’ lines. I am certainly no expert on this indicator and if you want to learn more detail I suggest you carry out a search using your preferred search engine. I simply started off using the basic tenet that many traders use with this indicator and that is: to go ‘LONG’ when price is above the ‘cloud’ and to go ‘SHORT’ when price is below the ‘cloud’.

Applying Ichimoku to TradeCharting:

I have been looking at the Ichimoku on the 4 hr and daily charts for both indices, the USDX and EURX. I am finding that this indicator is of most value when applied to the daily charts though. I have been monitoring this indicator on the daily indices charts for about four months now and feel that I am able to draw some valid conclusions. I have been looking to see if there is any parallel between my trend trading TC signal performance and any particular phenomena on the Ichimoku charts. I looked at the daily Ichimoku charts of both the EURX and USDX and, then, I correlated theses against the success of my TC signals during the same time frame over recent months. This is when a couple of things jumped out at me! I’ve noted these findings on the EURX and USDX charts below. Now, I would like you to click on the charts below to enlarge the image and, then, see if you can predict what my actual ‘Epiphany’ was!

 

Answer: 

The conclusion that I have drawn from this particular Epiphany moment is that the Ichimoku Cloud chart provides warning signals for potential choppiness with 4hr trend trading. When price is embedded in the Ichimoku Cloud or tangled in the Tenkan-sen and Kijun-sen lines then 4 hr trend trading is likely to be choppy.