Trading with Ichimoku Clouds: The Essential Guide to Ichimoku Kinko Hyo Technical Analysis

Chapter 1. Ichimoku Components

Before I start to explain all the Ichimoku components, I need to discuss some background information. First, I use the daily time frame as the main reference time frame throughout the book. However, this does not mean that Ichimoku Kinko Hyo only works for the daily time frame. Today, Ichimoku is used at the tick level, 1 minute, 3 minutes, 5 minutes, 60 minutes, 120 minutes, daily, weekly, and so forth. The reason why I discuss the daily time frame is that everything moves at a "slower pace" than the minute time frame. You can "see" everything this way. In order to be able to trade a faster time frame like a 5 minute, you must master the daily time frame.

The next question everyone asks now is: Should we look at a lower time frame along with the daily time frame? To answer that question you have to look at the three different types of trades that exist:

1. Trend: Price goes in one direction for a long period of time. During a trend, the higher time frames influence the lower time frames where the lower time frames are supporting the higher time frames (Figure 1.1).

2. Countertrend: Price has gone in a certain direction for a long time already. Now, the trader believes that the trend is over and the trader wants to trade against the trend. During a countertrend movement, the lower time frames are not supporting the trend. They are going against the trend to a point they influence the high time frames (Figure 1.2).

   Figure 1.1. TradeStation Daily Ichimoku Chart/30 ...