The Ichimoku Chart

At first glance, the Ichimoku chart looks confusing. You see lines and grayed out areas. The chart even extends out to the right...beyond current price. So what's up with that?

When I first began using these charts in 2009, that was my first impression also. But, being a technical analyst, I decided to keep playing with the charts and study them further. That led me to add more "western" indicators to further clarify what this Japanese system of indicators was telling me. 

Here's an example of an Ichimoku chart:

The above 5-minute chart of the EUR/USD may seem confusing at first.  But just to illustrate once aspect of this chart, the brown area above price is called the Kumo ("cloud") and it signifies an area of price resistance.  If you were a day trader using this chart, then you would know that price might hit overhead resistance after 10 AM that morning and you would be ready to short the Euro.

You can use these charts as a swing trader as well.  And most find that the longer time perspectives work best, whether you are trading stocks or currencies. 

Learning to read and understand these new charts takes time. First you have to understand the language of the Japanese words and then you learn to interpret the charts. This only occurs with experience and by being open to what the charts are telling you.

But once you understand how to interpret the chart, then you will find yourself using it in all of your analysis. The reason? It all gets to the interpretation of what Ichimoku means. Here's a loose paraphrase: "a view from the mountain top". In short, the Ichimoku chart gives the trader a unique perspective on the market.

While most traders are focused on current price action, these Japanese-based charts allow the trader to see the chart from the point of view of time past, time present, and time future.   This view allows the day trader or swing trader to anticipate future price action.  For example, if you know that a descending Kumo is up ahead, then you know there is an area of possible price resistance.  If you were showing profit on the trade, then you might take a partial exit and move your stop tighter to protect your profits.

If you'd like to know more about trading with these unique charts, then I have a series of videos you might like to see. The videos are free and they go over the basic terminology of this system as well as how to use them in your trading.

CLICK HERE for the FREE video series and to learn more about interpreting the Ichimoku Chart.