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Basic Ichimoku Trading System

This system can be put in the trend following category. It uses Ichimoku Kinko Hyo, a trend based indicator and a Stochastic that gives the buy and sell signals.

Because this system uses Ichimoku as the trend following indicator it would be recommended for the traders to apply this strategy on higher time frames, like 30 minutes, 1 hour and up to a month. The best part of the system is that it can be used on every type of instruments (from the most liquid – forex- to stocks and commodities that are not that liquid).

Let us talk now a bit about these two indicators. The Ichimoku Kinko Hyo it used with its default settings, because it usually gives the best signals with them. The Stochastic Oscillator can be adjusted, but we chose to leave it also at the default settings as it proved to work very well on higher time frames.

First step in using this strategy is to look for a trend. As long as the Ichimoku Cloud is under the current price, the trend is up; on the other hand if the Cloud is above the current price the trend is on a down slope.

Second step would be to follow the price action. When the price enters the Cloud, look for an oversold on the Stochastic.


Chart: AUDUSD, H1

As you can see in the example bellow, the price is above the cloud after a breakout. When it has retraced the Stochastic went under the 20 level. The trigger is the comeback of the oscillator above the 20 level.  Buy after the close of the candle that got the Stochastic back and set the Stop Loss under the latest low. If the Stop Loss will be set under the cloud, then the probability for it to be hit is even lower.

In what concerns the profit levels, there could be several of them. One Take Profit level could be the latest high, another could be set taking into consideration the money management and the most distant could be another intersection of the price with the Ichimoku Cloud.

This trading strategy can be used also in downtrends. The trader should wait for the price to be under the Ichimoku Cloud and the Stochastic to signal selling points inside the cloud. Pay attention to the sideways moves because this system could offer low probability trades.

Basic Ichimoku Trading System by