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    Ichimoku Kinko Hyo

    Here’s a picture of the system. Just noticed how it timed the market beautifully..




    Right before the market had a huge run, it gave me the signals I needed in order to make the big bucks. Can you see how the cloud was beginning to open up, and suddenly the price slightly touched the cloud? At the same time, the purple line (the Tenkan-Sen) crossed the blue line (the Kijun-Sen) signaling even more strength in the market.
    Right after the price touched the cloud, if you bought the trade, you could have made a boatload of money. This is the system I’m going to teach you, and there’s a lot more to it. You will use this in conjunction with everything I have taught you previously, and it will make a difference. This is the real deal, it’s almost like ‘cheating’ the market. Now, let me explain exactly how the Ichimoku Kinko Hyo works. It literally translates to “Equilibrium chart at a glance”. Even though it may seem slightly chaotic, it is not. You’ll learn how to read all the five lines and the cloud at a glance, by the end of the next chapter. Just a simple look at the chart will give you the best understanding of the current trends in the market. You’ll learn its strength, its momentum and the ‘feeling’ of the trend instantly. I also want you to keep this to yourself, don’t tell all your friends. If you do that, our golden goose is going to get killed. You have to think about the Ichimoku as a system that tries to show you whether the market is at equilibrium or not. And if not, you’ll know exactly which direction the market is going to. And you’ll be laughing all the way to the bank.
    There are 5 lines, or components, to the Ichimoku System. Let me teach you how they are created, so you can understand the mechanics behind the system. To make money, you have to understand everything you do. And this is no different. Making money isn’t hard, but you have to know what you’re doing.

    THE TENKAN-SEN
    The Tenkan-Sen is calculated by the following formula: (Highest High + Lowest Low)/2 for the last 9 periods.
    You may think that it is very similar to the moving average. However, it is the average between the highest high and the lowest low in the window. So there is a big difference, in that if the market doesn’t know where to go, the Tenkan-Sen will be completely flat for the period. If it is flat, it is because the price is in a short-term equilibrium. This is why most other traders lose money, they don’t see the equilibrium. They think that the market is always going somewhere. And trust me, most of the times it is not.
    You can see it in this picture:

    Look at the Purple line. That is the Tenkan-Sen. It doesn’t know where to go, because neither does the market. It is a lot less reactive than the simple moving average, so it is a very good conservative line. It represents a better estimate of the actual price equilibrium. Do you get it? The good thing about knowing when the market is in equilibrium is because we don’t want to have any false buys or false sell signals when trading. If it is flat, we know that in the past 9 days the market is showing no trend at all.
    Last edited by riki143; 01-21-2011 at 01:44 AM.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




  2. #2
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    THE KIJUN-SEN

    The Kijun-Sen is calculated using the following formula: (Highest High + Lowest Low)/2 over the past 26 periods.
    Look, it is very similar to the Tenkan-Sen, and it is one of the true hearts of the Ichimoku Kinko Hyo system. If conservative traders like to use the moving average, we will use both the Tenkan-Sen and the Kijun-Sen. The Kijun-Sen provides us with the same information than the Tenkan-Sen, but on a longer time-frame. Check out the blue line, we can see that it shows the same behavior as the Tenkan-Sen..

    It becomes flat when the market is not doing much, when it is basically just random-walking without any true trend. Don’t do the same mistake that those broke traders in Wall-Street do all the time: The price may be moving, but it may be going NOWHERE. Don’t try to follow a trend too closely, sometimes the price will be going nowhere and if you trade, you’ll lose money. Lots of it.

    Because the Kijun-Sen uses a longer time-frame, it is a very good short-term indicator of the trend of the market. It is not jumpy and it will tell you when the market is not reacting. If there is a new highest high, the Kijun-Sen will spike up, so you can actually follow the trend of the market by following the trend of the Kijun-Sen. Moreover, if the angle of the Kijun-Sen is getting steeper, the trend is getting stronger. If the angle gets flatter, the trend is weakening. You can easily see that here:

    Can you see how the Kijun-Sen got very steep? Look at the blue line. It is usually unreactive, but suddenly it shot up like a rocket. The Kijun-Sen is a very good indicator of the price equilibrium, even better than the Tenkan-Sen, because of the longer period. I will explain it to you later how we may use it to trade, how to find equilibrium points and how to use it as a stop-loss and as an entry point. And don’t trust any other system.
    There is another point to the Kijun-Sen. If it becomes flat, it transforms itself in an attractor to the price. If it stays flat for long enough, the price will go towards it, no matter what. It’s all about the moving average the Kijun-Sen is calculating.
    Last edited by riki143; 01-21-2011 at 01:45 AM.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




  3. #3
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    THE CHIKOU SPAN
    The Chikou Span is the current closing price time-shifted backwards into the past, by 26 periods.
    The Ichimoku has these unique features that you will not find in any other charting system. The rationale is pretty simple: we can quickly compare today’s prices with those of 26 periods ago, and by doing that, we get a better sense of the trend of the market as a whole. Think of it as your best trading memories. You should always compare them to your current trading, to make sure you’re going in the right direction. If the current price is lower than the price of 26 periods ago, we know that the market is bearish. And we can expect, depending on the other factors of the system, a high probability of the market going even more bearish. We can easily see the trend with the Chikou Span.

    Conversely, if the current price is higher than the price of 26 periods ago, we know the trend and we know that there is some high probability of the gaining even more ground.

    Even though the trend may seem obvious here, sometimes it won’t be that obvious. So you must use the Chikou Span. It also has other uses, but we will discuss them later when talking about trading strategies. You’ll mostly use it to confirm your trading calls.
    Last edited by riki143; 01-21-2011 at 01:45 AM.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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    THE ICHIMOKU CLOUD
    The Ichimoku Cloud has two parts, both the Senkou Span A and the Senkou Span B. This is the foundation to the Ichimoku System. While we could use each-other separately, their real power comes when we can grasp their dynamics in the Kumo.
    We calculate the Senkou Span A by doing the following: (Tenkan-Sen + Kijun-Sen)/2 time-shifted into the future by 26 periods.
    We calculate the Senkou Span B by doing the following: (Highest High + Lowest Low)/2 for the past 52 periods time-shifted into the future by 26 periods.
    Each of these lines has a powerful meaning. By using the average between the Tenkan-Sen and the Kijun-Sen time-shifted into the future, the Senkou Span A can quickly give you the power to see the support and resistance from 26 periods ago, and compare it with the current spot price.

    The Senkou Span B, on the other hand, lets you see the longest-term equilibrium. So you can quickly make more informed decisions about the trade.

    These two lines are not supposed to be used alone. Always remember, they are only useful together. The cloud is the heart of this system, and if you master it, you’ll be able to make fortunes trading Forex. And it is easy to learn it too.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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    CALIBRATION
    Like every system, this one has to be calibrated according to the market you are playing. In a faster market, you would want to cut down the periods. For instance, in times that the market is experiencing unusual external stress. While if the market is sleeping like a baby, not seeing a lot of changes, you should extend the periods in order to profit the most from those longer-term trends.
    But the standard, and the settings that I use the most, is the 9 – 26 – 52 combo. You should burn these numbers in your mind, because they could bring you more money than any other three numbers in the world.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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    HOW TO USE THE ICHIMOKU
    Now is the time to learn how to use the system. And there are several parts to it. First you have to learn how to use the Kumo.

    THE KUMO
    One of the Kumo’s most important aspects is the fact that it can provide you with the best support and resistance system. If you use still use trendlines, stop. Look, I’ve tried hundreds of methods to find the correct support and resistance in Forex, and most of the times, I got burned. Even though the techniques from the Candlesticks were pretty good, I feel it is my duty to tell you that this system will almost work like a crystal ball, as soon as you begin to use it.
    Just imagine the inside cloud as the only place you have no idea what is going to happen, it is too cumbersome to try to figure out exactly how the price is going to react in the middle of the cloud. But you know one thing: If it breaks the cloud, it will keep on going. And going. And going. Look in the picture below how the prices ride the cloud, it is absolutely amazing.

    And it just blows the traditional chartists out of the water. You’ll be basically ‘cheating’ your way out of losing trades. By figuring out in advance whether the market is breaking the support or the resistance. Some chartists would lose all this money by not figuring out that the true support was still below the prices.

    I don’t even know how some people make money without using the Ichimoku. It is so simple, yet so powerful, that I find it strange that not a lot of traders use it. I’ve made a killing with it. Another problem that usually makes traditional chartists lose a boatload of money is when the price is in the middle of the cloud and, because they can’t see it, they go long thinking that the resistance has been broken. But it hasn’t, the price is in the middle of the cloud and it is too risky to go long or short in this situation. Just check out the following picture and you’ll clearly see what I mean, the traditional chartist would have gone short on the trade, however, he would have lost everything pretty quickly. He didn’t realize that the price trend was not yet defined. The price touched the Senkou Span B and reacted faster than any chartist could see.

    This is the power of this system. And we are just getting started.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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    But what about the relationship between the price and the Kumo? Well, if you haven’t realized until now: if the price is trading above the Kumo, what we are seeing is a bull signal, because obviously, the current price is higher than the historical average.

    In the same way, when the price is trading below the Kumo we are in a bear market. The first step in analyzing any trading situation is to see the relationship between the price and the Kumo. When you do that, you’ll have the necessary market trend information. Something that can be hidden with other methods. Here’s an example of a bear market:

    Don’t trade unless your trade agrees with the Price-Kumo relationship. Don’t go long if the relationship is bearish. You may make 2 pips, but you’ll lose 50. Just go short and ride the trend. It is always better to ride the trend, than to try to time the market perfectly. Another very important factor you must take in consideration is the Kumo’s depth. It can vary immensely, and you have to know exactly what it means. If the market is too volatile, the Kumo will open up; conversely, if the market is not volatile at all, the Kumo will close up.

    But why is that?

    Remember what the Senkou Span A and the Senkou Span B represent? The Senkou Span A represents the average between the Tenkan-Sen and the Kijun-Sen. But the periods for the Tenkan-Sen and the Kijun-Sen are different, they are respectively 9 and 26 periods. So when you average it, you are finding the middle point between the longer average and the shorter average. While the Senkou Span B represents the average of the highest high and the lowest low for the past 52 periods. When you take the difference between both, you are basically measuring the local volatility against the longer term volatility. So the Kumo will expand and contract based on the volatility of the market. And what does that mean to you? Well, if the Kumo is very thick, and you’re long in a position that is breaking through the resistance, you should go long as soon as it breaks through the Kumo. Whenever the price breaks through a thick Kumo, it will gain momentum very quickly and rapidly. For instance, here we can see both a very strong short and a very strong buy signal:

    In the first situation, the price broke through a thick Kumo and tried to beat the new resistance. But because the Kumo is too thick, it didn’t have the strength to break through. If you had shorted the trade as soon as the price came below the Kumo, you would have made a killing. Why would you short it? Because you know that the Kumo is very strong, and it would be very hard for it to come back up.

    Similarly, on the second moment, the price stayed with the Senkou Span B for a couple of seconds as it tried to break the resistance. As soon as it did, the market had a huge run-up. It is that simple to make money by trading the Kumo. And we are just beginning. As you can see, the Kumo also has a sentiment. It has a natural bias, sometimes bullish, sometimes bearish. It has a bullish sentiment when the Senkou Span A is above the Senkou Span B. And conversely, it has a bearish sentiment when the Senkou Span A is below the Senkou Span B. Why is that? Well, in the first case, the faster average is trading above the longer-term average. And in the second, the opposite is happening. It is that simple. Here’s an example of a bearish Kumo:


    And here’s an example of a bullish Kumo:


    Don’t trade on the Kumo’s sentiment alone. It is not a good strategy and you’ll lose money if you do it. The Kumo’s sentiment is just another piece of the puzzle. You should use it only as confirmation, not as the primary driver for your trades.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




  8. #8
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    There is another aspect of the Kumo that you have to understand in order to grasp the magnitude of the effectiveness of the Ichimoku. You’ll often see flat tops or flat bottoms on the Kumo. If you see a flat Senkou Span B, you have to think of it as having the same effect as the flat Kijun-Sen. It is an attractor to the price that is in its close proximity. Why? Because the Senkou Span B is the price-equilibrium for the past 52 periods. The price will always want to go there, if the equilibrium remains for long enough. In a bullish trend, the flat Senkou Span B will result in a flat bottom Kumo, while in a bearish trend it will result in a flat top Kumo.

    Beware of the pull of the Senkou Span B on the prices, most likely the prices will ride the flat bottom or top, so you must choose the entry or exit point carefully. Here you can see an example of what can happen if you don’t respect the flat Kumo, you can go short at the exact wrong moment and lose your money fast. Remember that even though the price has crossed the cloud, because the Kumo has a flat bottom it still exerts a lot of pressure and pull over the price.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




  9. #9
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    THE MOST IMPORTANT TRADING STRATEGY!

    I’ll give you all the best trading strategy for this system. The other ones I’ll give you in the next chapter as reliable, but are not as reliable as this strategy. This is the most traditional strategy within the Ichimoku framework, and all serious practitioners should completely understand it.

    If the Tenkan-Sen crosses above the Kijun-Sen, we have a bullish signal. If the Tenkan-Sen crosses below the Kijun-Sen, we have a bearish signal. The strength of the signal depends on the the relationship between the price and the Kumo.

    Here’s how it works:





    As you can see, in the point A we have a Neutral Bullish Signal, and in point B we have a weak Bearish Signal. Now you have to check the relationship between the cross and the Chikou Span. It is that simple.

    What is the point of entry? This is pretty easy to see: an order is placed when the cross has been solidified. Just be careful of any resistance near the cross. And remember that if the cross is solidified while the price is leaving the Kumo, there is a high probability of a strong movement.

    What is the exit point? There are several different exit points, however, the easiest exit point you can take is whenever there is a reverse-cross. Just remember that your own money-management skills will be the primary driver of the exit point. If you want to exit as soon as you make 85 pips, do it. If you want to take a little bit of volatility and ride the trend, do it. Follow your usual strategies when exiting. Similarly, there is no stop-loss strategy.

    Take the profits when you have reached either your personal goals, or the cross has reversed itself. Don’t try to over-ride the trend, it will come back to bite you in the ass if you do. For instance, here’s a simple trade that could have made you 117 pips in a day, easily.



    And all I had to do was to buy when I saw the cross, and sell when I saw another cross. No big deal. The price was above the Kumo, giving me even stronger bullish signals.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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  11. #10
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    THE ADVANCED TRADING STRATEGIES

    Let’s take a look now at our advanced trading strategies.

    THE RELATIVE TENKAN/KIJUN CROSS


    Let’s get it started then. This first strategy is very similar to the Tenkan/Kijun Cross, however, now I will teach you the secret exit strategy that is at the heart of all the advanced strategies I am going to teach you. You have to learn not only when to buy, but more importantly, when to get out. As with the Tenkan/Kijun Cross, as the Tenkan crosses above the Kijun you should go long. And if it crosses below the Kijun, you should go short. The strength of the signal depends, again, on the relationship between the cross and the Kumo. This will be true for all our strategies.

    However, the heart of this new advanced trade is the exit strategy. We are going to use a popular oscillator to give us the exit strategy: The Relative Strength Index. I know, it may sound old and boring.

    That’s what I thought, too, when my mentor taught me this secret for the first time. I was wrong. So very wrong. Sometimes, old is good. And in this case, I’ll show you exactly why the Relative Strength Index will give you the best exit strategies. Look at the following bullish example, and I’ll explain what I did there.



    The entry point is when the Tenkan-Sen crosses the Kijun-Sen right?
    Entry Point: At Point A, the cross had a weak bullish signal. However, because the depth of the Kumo is very thin, I went ahead and bought the trade.
    Exit point: At point B our exit strategy was triggered. Now here’s what I have to explain to you; this is our bullish exit strategy:
    1. Whenever the RSI falls 10% or more.
    2. If the RSI falls down less than 10% and when it runs up it doesn’t break the peak-resistance.

    This is exactly what I did there. The RSI fell a little bit, and then gained back again but didn’t have the strength to break through the peak. That is my signal to sell. It showed weakness, and we never like weakness in a bull market. My next entry point was the other cross, on point C. However, this time we were very confident: it was a strong bull signal above the bullish Kumo. That is a very easy trade. Again, I used the exit strategy on point D, and didn’t lose a single pip. This is gold.
    I will give you 3 more examples so we can get this engrained in your mind. Let’s take a look at another bullish example:

    Again, as you can see, the strategy works like a charm. This may be the easiest way to make money with the Ichimoku. You bought it at point A, as you saw that very strong bullish signal with a bullish Kumo. After we reached point B, our exit strategy was triggered and we exited perfectly.

    My Mentor once said to me that if he could choose only one trade, he would choose the Relative Tenkan/Kijun Cross: it is easy to apply and extremely reliable. For those on the outside, it looks like you have a crystal ball.
    Rules:
    1. Don't Loose Your Money!!!
    2. What ever you do, remember rule no.1




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