In the last post on the Ichimoku Kinko Hyo, we introduced the comprehensive indicator. It is both an analysis indicator and a trading system, because due to the many indicators it combines, trading signals can also be generated.
Furthermore, we have found that the indicator is a trend following indicator. Due to the many confirmations that must be made for a trading signal to emerge, its primary weakness is the late signaling. However, many weakness indicators have this weakness, because the trend must first be confirmed before the indicator generates a signal.
We have found that trends can be traded on a long-term basis with the Ichimoku Kinko Hyo. However, the indicator may also be applicable on a short-term basis.
Short-term trading in the Ichimoku
Reminder: A buy-trade signal is generated in the Ichimoku when...
- the Tenkan-Sen line, which crosses the Kijun-Sen line upwards.
- there is an eruption from the Kumo cloud.
- the Chikou-Span line confirms the eruption.
The following 4-hour chart for the S&P 500 on a 4-hour basis makes it clear that signals can be profitable. All three criteria would have indicated a short-term trend early enough and generated a signal.
The question that should still be asked is: If the three criteria are met, where is the optimal entry-level course? Because if you only take the three rules, it still makes sense, especially in the short-term area, not to buy in the increase, but also to look for a good entry point.
Under this aspect, you should therefore consider the three Consider the above rules as the first step, which is the "go" for entering a position. The purchase is in turn based on additional rules. Why is that so important?
For the same reasons why you normally want to get a good risk-reward ratio. This is the case if the loss potential is less than the chance of winning. The entry-level set-up with regard to the example above should therefore be chosen in such a way that you can hedge yourself very tightly downwards, while the probability of a trend continuing is very high.
We can do two of these Identify set-ups in this chart. The first emerges a short time later, after breaking out of the Kumo cloud. In this case, a retest of the support could be used as an introduction. However, if you want to be absolutely sure, wait for the retest of the Kumo cloud. This takes place as part of the second entry-level set-up. The Kumo cloud serves as a clear support zone and thus also corresponds to the interpretation rules of the Ichimoku Kinko Hyo.
After you have found a good entry-level set-up, you wonder where you should choose to exit. Depending on the product traded, this question can of course be answered differently. In the case of binary options, the question of the term arises. For other products, the exit must either be defined by a stop order or by reversing the trend.
The example above can clearly illustrate the latter. The exit should take place when the Kumo cloud is broken down and the other two signal rules point in the other direction, i.e. a counter signal is generated. In the case of binary options, the choice of the right term should at most be recorded statistically or based on experience. The question is: how long do trends on a 4-hour basis normally last? Also, this question does not affect every value across the board, but is related to the respective traded value, as in this case with the S&P 500.
Of course, not everyone will be able to carry out the statistical evaluation. So what remains is the empirical value. As a rule, you help yourself with a fixed value that you always choose. In the case of 4-hour charts, for example, a duration of between two and five days, since trends, if caught early enough, usually last for several days.
Conclusion - Ichimoku Kinko Hyo is strong in the short term Trading
The trading system of the Ichimoku Kinko Hyo is also suitable for trading on a short-term basis. Even more: trends can be recognized even earlier than on a weekly basis, for example. It should be noted, however, that signals confirm the direction, but do not indicate an optimal entry point. This should be defined by additional entry-level set-ups. The rule should apply: Buy cheap and sell expensive and vice versa.
For exits, the duration should be selected for binary options depending on the selected period. In other products, counter signals are considered exit signals. With the broker Binary.com, the US index can be traded with binary options for a few days.