Looking at the chart above of the NZD vs USD on the daily time frame all we want to do is determine the sentiment of the market and trade in that direction. So if the market is bullish we'll go long and if the market is bearish we'll go short. How do we determine the sentiment you ask? Well if price is above the Kumo Cloud then the sentiment is bullish and if price is below the Kumo Cloud we are considered bearish. Currently price is above the Kumo on this daily time frame so we'll check to see if price is above the Kumo on the 4 hour chart. Also notice that since we determined price to be bullish and were looking for a long opportunity we need to know where the next logical target would be and you can see the red line above representing resistance at .82180 and also a double top if price reaches that level. Now on to our 4 hour time frame where we find our opportunity.
So the sentiment of the 4 hour chart is neutral because price is inside of the Kumo. When price is inside the Kumo Cloud it's considered turbulence and we have to wait for price to exit the cloud. My thinking is that since price is bullish on the daily with a clear resistance destination we'll anticipate price moving upwards and outside of the Kumo. So I'll place an entry order @ .81300 with a stop loss @ .80988 for a stop loss of 30 pips. We determine our stop loss to be at the level of the Kijun which is the dark blue line on the chart. Our profit target @ .82180 gives us a profit of 90 pips so our profit to stop loss ratio is 3 to 1. So if this trade works out as planned we can win this trade and then have 3 losing trades with the same stop loss level and break out even. If were just 50% correct with ratios like that we will still end up with profit.
Now at this time if price doesn't go our way then we have nothing to lose. If price does break through the upside of the Kumo then I can move my stop loss with the Kijun level and if price closes on the opposite side of the Kijun then we exit the trade. The Kijun acts as a trend line in the Ichimoku system and usually if price break that level than you can expect a change in trend. Knowing this then we always want to trade in the direction that the Kijun is pointing. If its up we go long, if it's pointing down we go short and if it's flat lined then the market is dead for our system since it's a trend based system.
Hopefully I helped you understand a little bit more about trading the Ichimoku system. Until next time GOD bless