Summary

I hope that you have been able to see that cloud charting is an enormously useful technique. Rather than just having one indication, the cloud chart allows you to look at the price action from several angles at the same time. This means that you can look back at the historical charts and see which indication works the best for the security you are trading, with a minimum of false signals.

Just as candlestick charting has taken over from bar charts for many traders because of its ease of use and information quality, so the Ichimoku technique will become more widely used, and possibly take over from some other Western charting. But there is still a place for Western indicators to be used in conjunction with cloud charts, and you should be very wary of trading on the basis of any signals unless you have confirmation from a separate type of indicator. The advice, as with all technical analysis, is to gather sufficient information from your different analyses to corroborate your decision to make a trade.

One trader actually e-mailed me with the following thoughts.  “I’ve been using Ichimoku on my charts for a number of years and here are my impressions:

Pros: it’s an easy one-glance context for market trends/bias. Above kumo bullish, below bearish. It also helps to identify some pretty obvious 50% S/R as that’s how the formulas behind Ichi work. But if one is good at drawing FIBs or identifying support/resistance on naked charts, it’s not that necessary.

Cons: It is a massively lagging indicator. I feel that saying that it’s not a lagging indicator is very misleading, though I can understand why one who promotes his work and believes in this system would say so. At the end of the day, Ichimoku is really just a bunch of MAs with some slightly tweaked formulas. If those who like to bash indicators say MAs tend to lag, Ichimoku equally lags. But there are many people who can successfully trade MAs-based systems, so I would say that Ichimoku can equally work well in the right hands.

I have always loved indicators probably due to my start in trading and for a long time resisted perhaps subconsciously vanilla chart reading, thinking it’s too dangerous. Now I’d spent probably enough time in staring charts and reading enough price action charts and materials, I have finally come to my senses and conclusion that the only REAL non-lag indicator is price itself, if only one learn to identify proper support/resistance, and supply/demand (a la Sam Seiden)levels. If one can get it right, it can be right and precise to the pip, at whatever timeframe, even in tick charts (I trade eminis too).

I still have Ichimoku on my charts, partly because old habits die hard, partly because it can be a handy reminder of overall bias, but I am gradually navigate more and more towards price action trading. It takes time, and takes experience, especially for someone who has been a long time trading indicator-based methods. But, not wanting to sound like a second-hand car salesman, I would say, trust me, that’s the true path to identify excellent entry and exist, with truly minimum risk. Price moves from one level to another. What is needed is to identify those levels properly. Being able to find those levels and have the confidence to trade them would give one massive advantage, and much less risk than Ichimoku.

Good luck and happy hunting.

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The Masters Certificate in Technical Analysis - Module 10

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