8. Ichimoku and Fibonacci Forex trading strategy

I hope that after chapter 7 you understand Ichimoku pretty well. I like to join Ichimoku with Fibonacci lines. Why? Ichimoku gives me a look at current situation. It can also give us a signal to take positions. So in short:

  • I open position based on Ichimoku and Fibonacci retracement lines
  • I exit position based on Fibonacci extension lines

I prepared some examples and it should be clear how to join these tools.

USDJPY, 1-hour. Correction to the cloud and break from cloud

This is an example you will see many times. Move from A to B, then correction which goes inside a cloud.
Break from the cloud is a good Ichimoku signal. If price breaks out above the cloud, then it is a buy signal. If it breaks below cloud, it is sell signa.

In this case, after correction to C – 61.8% (inside cloud) we saw a break down from a cloud – a signal to sell. Also, there was a break below Kijun line – another bearish signal.
This was a start of a stronger move down.

8.1. Break from the cloud as a trading signal

8.1. Break from the cloud as a trading signal

USDJPY, 1-hour

Another example when there is a correction to the cloud and after that a break from the cloud and signal to sell.

If it is not a range move then this signal works pretty well.

Image 8.2. Ichimoku and Fibonacci - example

8.2. Ichimoku and Fibonacci – example

GBPJPY, 4-hour

Sometimes the cloud is far away from price. In the example below, we can see that C (61.8%) was away from the cloud.

After cloud, our next indicator of possible next move is a break through Kijun line (green).

OK, so we didn’t have a break from the cloud, but there was a break below Kijun-Sen.

Again. When a market is not in a range, this is a good indicator od possible price move. Indeed, in this case, it was. After a break below Kijun, we saw a strong move down.

8.3. Use of Kijun-Sen as an entry signal

8.3. Use of Kijun-Sen as an entry signal

GBPJPY, 1h, part-1. Kijun-Sen as trailing stop

Kijun-Sen is a great indicator even left alone. We will see that in this 2-part example.

Let’s start from entry.

ABC move. C was at 50% retracement. We saw some range move below 50%. Price entered a cloud and later there was a break down from a cloud – a signal to go short.
Of course, in this case, we could wait for a break below the green trendline.

This was a good entry, with help of break from cloud which I described before.

8.4. Part 1 – short position after break from the cloud

8.4. Part 1 – short position after break from the cloud

GBPJPY, 1h, part-2. Kijun-Sen as trailing stop

Now we have an open trade which is profitable and there is one question. Where to exit?

I wrote later that I like to close my trades in parts. Sometimes you see so strong trend that you start to wonder – close at extension or wait?

8.5. Part 2 – Kijun-Sen as trailing stop

8.5. Part 2 – Kijun-Sen as trailing stop

I always close part of my trade at 161.8%. This is very popular level were many traders do the same. Still, if a trend is strong you can use Kijun-Sen as a help. Kijun often works as a resistance. In this example, we saw that during a correction Kijun acted as a resistance. A clear signal to place trailing stop loss above Kijun. Thanks to that single Ichimoku line we could catch a hefty portion of a move.

TD stocks, weekly chart

On weekly chart, we can spot easily ABC move. Correction stopped at 50% retracement and we saw some activity from bulls. When to enter? I left Ichimoku on chart. On higher time frames price rarely crosses with Kijun-sen. When it managed to close higher than Kijun-sen, it was a good entry point. Later there was a nice, strong move up to the 161,8% extension line. Does it mean that this move ends here? We do not know that. We only know that this is a good place to close position.

8.6. Strong move down to the 200% extension

8.6. Strong move down to the 200% extension

Remember – it is a weekly chart and still we can pinpoint exit point with good precicion.

Using Ichimoku Kinko Hyo Monitor

Ichimoku is great in long term trading, but you can also use it in short term trading. The problem is that Ichimoku is rather complex (we have signals from Kijun, cloud etc.). Add to that fact that we have to check the situation on other time frames. It may be tough for someone new in Ichimoku. Even for me, it is not easy when I scan many pairs.

I included to my trading with Ichimoku an indicator called ichi360 Monitor. It is not written by me. Few years back there was a very good blog ichi360.com about trading with Ichimoku. The blog is not around anymore, but author (who was also a programmer) shared some indicators on his site. To this day, you can find them on various FX forums.

Ichi360 Monitor is very cool little indi. It looks like that:

8.7. ichi360 Monitor on chart

8.7. ichi360 Monitor on chart

We are interested in the lower part:

8.8. Situation on all timeframes

8.8. Situation on all timeframes

We can see situation on all time frames from 1m to weekly. The shortcus are:

PA – price action, is price going up or down
P/K – price to Kijun-Sen
T/K – Tenkan-Sen to Kijun-Sen
CS – Chikou-Span
C/K – Cloud vs Kijun-Sen
C/C – Cloud vs Chikou-Span

Bund, 4-hour

Take a look at this 4-hour Bund chart. Thanks to the ichi360 we know that on all time frames situation is bullish. Also, we had a buy signal from Ichimoku and, of course, a nice looking ABC Fibonacci pattern. It looks good and should be a good long trade.

8.9. Long trade with help from ichi360 Monitor

8.9. Long trade with help from ichi360 Monitor

NZDJPY, 4-hour

Let’s take a look at more complicated example. NZDJPY on 4-hour chart was in a range move, but it was clear that ABC pattern is in place. Also, there was a resistance from cloud and resistance line. From ichi360 we knew that situation is bearish. If we would enter in that moment then we should wait for a break below temporary support line marked on the chart.

Stop loss would go above the cloud.

8.10. Short trade. Ichi360 Monitor shows bearish situation on other timeframes

8.10. Short trade. Ichi360 Monitor shows bearish situation on other timeframes

AUDUSD, 15m

The situation is not clear on all time frames, but we are on 15m and it is a downtrend. Also, 30m and 1h are down. After correction to 78.6% price started to move down. There was a sell signal from ichi 360 and moment later a confirmation from MACD. A good entry point.

8.11. Mixed situation, but downtrend is also on higher time frame

8.11. Mixed situation, but downtrend is also on higher time frame

USDJPY, 30m

We had a signal from ichi360, but price was above a recent low. We should wait for close below that level (green support line) and then enter short.

You can see in the right top corner that situation was bearish on all time frames. Good trading conditions for short.

8.12. Sell signal from Ichimoku

8.12. Sell signal from Ichimoku