FX Indices Ichimoku Alignment

February 11, 2013

Ichimoku Alignment/Divergence: Observations

  1. Introduction

  2. Definition of Ichimoku terms: Alignment and Divergence

  3. Ichimoku Cloud Alignment Implications

 

1. Introduction:

There are two main types of Ichimoku Cloud patterns across the EURX and USDX indices: Alignment and Divergence. Each of these patterns brings with it certain trading conditions so that a knowledge and understanding of these patterns is most helpful for any trend trading.

I have observed a few such periods of ‘Alignment’ and ‘Divergence’ now and consider that I am able to formulate and report on some fairly valid observations.

2. Definition of Ichimoku terms

Ichimoku Cloud Alignment: By this I mean that the Index charts are aligned for what I refer to as either ‘risk on’ or ‘risk off’.

 

Risk on:

  • price is above the Cloud on the EURX for both daily and 4hr time frames AND
  • price is below the Cloud on the USDX for both daily and 4hr time frames.

 

Risk off:

  • price is above the Cloud on the USDX for both daily and 4hr time frames AND
  • price is below the Cloud on the EURX for both daily and 4hr time frames.

 

Alignment is quite rare but offers enhanced trend trading conditions and so should be harnessed at the earliest possibility.

 

Ichimoku Cloud Alignment often results in:

  • More reliable TC trend signals on the 4hr time frame.
  • Longer duration trends from any TC signals.
  • TC signals that deliver a large number of pips (often in the order of hundreds)
  • A less choppy and, thus, safer trend- trading environment.

 

Ichimoku Cloud Divergence: By this I mean that the Index charts are NOT aligned for either ‘risk on’ or ‘risk off’. During Cloud Divergence you will notice price on the indices being in a more random configuration with respect to price being above or below the Ichimoku Cloud. There will be no overall bias, clear direction or pattern.

 

Ichimoku Cloud Divergence often results in:

  • Fewer TC signals on 4hr time frame.
  • Better and more reliable TC signals off shorter time frame 15 min charts during the US session.
  • Less reliable TC 4hr trend signals.
  • Shorter duration trends from any TC signals.
  • A choppier and riskier trading environment.

 

3. Ichimoku Cloud Alignment Implications:

 

  • TC signals are more reliable during Ichimoku Cloud alignment.
  • Be aware that major S/R levels will often be re-tested, even during major momentum moves.
  • Cloud alignment offers great trending trades with more reliable trading signals: why trade all year when there is more safety and better profits during Ichimoku Cloud alignment periods?
  • Ichimoku Cloud alignment offers great directional trading opportunities for Stocks and Options as well.