Trading The Cloud – Part FourWelcome to Part Four of my ichimoku mentoring course Trading theCloud. This will be the final lesson covering the basic Kumo Cloudtrading before I move on to part five where I will be teaching you theChikou Span and what part this indicator plays in the ichimoku jigsaw.Kumo SentimentThe Kumo cloud is made up from essentially two moving averagesThe Senkou Span A - Fastest averageThe Senkou Span B - Slowest average
When the Senkou Span A is above the Senkou Span B, the sentiment isBullish.This is because the faster moving average is trading above the slower.See below.
When the Senkou Span B is above the Senkou Span A, the sentiment isBearish.This is because the slower moving average is trading above the faster.See below.
How can we use this in our day to daytrading?When the Senkou Span A and B switch places this indicates a change intrend in either happening or will be happening very soon.It is always best to keep an eye on when the two lines swop places as thismay mark a change in direction and may help you decided to close anyopen trades you have.When this happens it is known as the Kumo twist. You can use this asan entry or a continuation signal when you start to build your ichimokutrading strategy, but I will cover this in more detail in later lessons whenI start talking about actual trading strategies.But for now I will show you two quick examples of how you can use thetwist to your advantage.
In the example above you can see that as soon as the Kumo twistoccurred, it can be used as a signal to close your open BUY trade.This is because the KUMO has changed direction from being Bullish toBearish.Look at this next example below:
You can also use the Kumo twist to open new trades as you can see fromthe example above.The Kumo twist is a powerful tool and when used together with all theichimoku components can be very profitable.Next up we are going to look at:Flat Top and Flat BottomKumosWhen you look at your ichimoku chart and the Kumo cloud, you willnotice that there is often very flat Kumo bottoms and tops.
The reason this happens is because a flat Senkou span B represents themidpoint of a trendless price situation (price equilibrium).This creates what we see as a flat bottom or flat top on the Kumo cloud.Because price in Forex will always return to equilibrium, and because aflat Senkou span B is such a strong indicator of equilibrium, itwill instantly become a strong attractor of price.So in simple terms, a flat Kumo will attract price that is in closeproximity kinda like a strong magnet.
Two things you need to know:In a Bullish trend the flat Senkou span B becomes a flat bottom KumoIn a Bearish trend the flat Senkou span B become a flat top KumoSo how can we use this to ouradvantage?
As an ichimoku trader, we can use our new found knowledge of the FlatSenkou span B to be more cautious about when price exits from theKumo.For example.When exiting a flat bottom (bullish) kumo from the bottom, youwouldnt treat this like a normal Kumo breakout, instead of entering atrade on the breakout, you need to take into account the flat SenkouSpan B.The way I deal with this is to wait for price to have moved about 10-15then opening the trade, this way we know price has moved out of thegravity pull of the flat Kumo.I will of course explain all this again when I cover the varioustrading strategies in future updates, but for now I need you tounderstand this theory and how price reacts around the flat Kumo topsand bottoms.Check you chart now and find examples of flat Kumo tops/bottoms seehow price reacts.How often does price break out from a flat Kumo and then pulls backlike an elastic band?If you have any questions about any aspect of the Kumo cloud, pleaseleave a comment below, I promise to respond to each and everycomment.Ok so thats the final lesson in the beginners guide to the Kumo, I hopeyou have enjoyed the lessons so far.Next lesson I will be covering the Chikou span in Part five of myichimoku training course - Trading the Cloud
I look forward to your comments below.Chris(Admin)