One of the most interesting means of price chart analysis on the options market today is an automatic indicator named Ichimoku Kinko Hyo (it is more often simply called the “Ichimoku”). It was created to improve the quality of asset price forecasting on candlestick charts, since on “clean” quotes, it is definitely not always possible to accurately determine the optimal entry points for trading. Thanks to tools like the Ichimoku, the arsenal of trading systems for analyzing the binary market is constantly being enriched with new highly effective methods, which gives investors the opportunity to significantly improve the quality of the signals they receive and, accordingly, increase their personal earnings. In this material we will study this original auto-indicator and give an example of its use in options trading.
How it works
The Ichimoku is a trend indicator, that is, a means of determining the direction of the current market. It is based on five different-period and different-type moving averages. Three of them are completely autonomous, and the remaining two form the Ichimoku cloud – a hatched area showing the current state of the asset’s exchange. It turns out that this auto-indicator doesn’t only give the trader the opportunity to determine trend direction, it also shows its extreme values and it gives accurate signals to enter the market.
Conditions for use
- Terminal: MT4;
- Time frame: arbitrary value;
- Asset: arbitrary major currency pair;
- Expiration: adjusted based on the selected time frame;
- Trading: preferably 9.00-19.00 Moscow time;
- Recommended operator: a modern terminal, for example, Binomo.
In fact, the Ichimoku does not generate a mono-signal to enter the market, but a full complex of signals. The main point to pay attention to when using the Ichimoku is the moment the location of the hatched area changes in relation to the quotes and the rest of its movings. More specifically, the intersection of the red and green curves is considered a signal of a change in the trend.
Practical use
So, let’s create a template field for applying the Ichimoku. It should look like this:
As it was initially conceived by the creator, Khosa Hoichi, the Ichimoku indicator was used on fairly long intervals. Nevertheless, over the time it has existed in the arsenals of traders (which is decades), investors have come to the conclusion that the highest prediction accuracy can be achieved on short intervals, including on one-minute charts. So, thanks to that, we can choose the comfortable M1 time frame with a clear conscience.
As mentioned above, you should first and foremost pay attention to the location of the “cloud” relative to the price of the asset. When quotes are in the hatched area it is not recommended to open contracts, as this is a sign that there is no obvious trend:
But at the moment when the quote columns leave the cloud corridor, or quickly cross it in a certain direction, an intense trend appears on the chart. This must also be confirmed by the crossing that takes place between the two movings of the indicator tool.
DOWN signal:
- Above the cloud, the movings cross downwards – brown and blue curves;
- Under the cloud, there is a closing of a Japanese candlestick.
On the previously prepared Binomo platform, we trade DOWN:
UP signal:
- Under the cloud, the movings cross upwards – brown and blue curves;
- Above the cloud, there is a closing of a Japanese candlestick.
On the previously prepared Binomo platform, we trade UP:
Expiration
It was found that when trading on expirations of 5-7 minutes (TF M1), the profitability of the system was about 85% on average.
When trading on the M5, the same result was achieved with a 30-minute expiration.
Money management
The value of the maximum contract when trading in the manner described above should not exceed 5% of the account balance. For those with smaller account balances, we strongly recommend that you limit yourself to the minimum possible trade size.
Additional autoanalysis tools, such as the RSI or Stochastic auto-indicator, can provide additional insurance when trading with Ichimoku.
