Traders are often amazed whenever they see trades that resulted in long-trends, huge gains and more pips. This is what many traders hope for, catching a trade that could change the trajectory of a trading account with just one trade.
Although these types of trades do not come too often and are difficult to catch, it could still be done. These are trades that turn out to be long-term trends. In order to catch these types of trades, traders should also think long-term. Indicators should be geared towards long-term trends and trade setups should be long-term.
Ichimoku Cloud Trend Forex Trading Strategy is a long-term trend following strategy that aims to align long-term trend indications in order to maximize gains. This allows traders to hold trades longer as long as the indications of a long-term trend is still intact.
ADX MA BO
The ADX MA BO indicator is a trend following indicator based on the Average Directional Index (ADX) indicator and a moving average.
The ADX indicator on its own is a great trend following indicator since it takes trend strength into account. In fact, the main purpose of the ADX component of this indicator is to identify trend strength.
The second component of the ADX MA BO indicator is the Moving Average (MA). Moving Averages are a staple indicator for most traders. It helps them identify trend direction based on the location of price in relation to the moving average line, and the slope of the MA line itself.
ADX MA BO indicator is displayed on the price chart as a series of dots. These dots form like a long line resembling a moving average line. The dots change colors indicating the direction of the trend. Blue dots indicate an uptrend while red dots indicate a downtrend.
Alternative Ichimoku
Alternative Ichimoku is a trend following indicator based on the Ichimoku Kinko Hyo.
The traditional Ichimoku Kino Hyo indicator has five components – the Tenkan-sen (Conversion Line), Kijun-sen (Base Line), Senkou Span A (Leading Span A), Senkou Span B (Leading Span B) and the Chikou Span (Lagging Span). All five components have different purposes and represent a trend.
The Alternative Ichimoku indicator however includes only the Senkou Span A and the Senkou Span B which are the components of the Kumo (Cloud). The Cloud is a dynamic area of support or resistance which represents the long-term trend. Price action constantly moving above the Cloud indicates an uptrend, while price action constantly moving below the Cloud indicates a downtrend. Crossovers between the Senkou Span A and the Senkou Span B also indicate long-term trend reversals.
This indicator also has a blue line running with the Senkou Span A and Senkou Span B which also represents a trend. This could be used for various purposes. It could be used based on crossovers with the Kumo. It could also be used as a basis for a trailing stop loss or a dynamic support or resistance.
Trading Strategy
This strategy trades on long-term trend reversals based on the crossover and confluence of the two indicators above.
Trend direction will be filtered based on the location of price in relation to the ADX MA BO dots and the color of the dots itself.
The Cloud should also indicate a reversal between the Leading Span A (light pink) and the Leading Span B (light steel blue). Price should stay outside of the dynamic area of support or resistance between the two lines, on the side of the Leading Span A. This would indicate a trending market condition.
The blue line of the Alternative Ichimoku should also cross the ADX MA BO dots indicating a long-term trend reversal.
Trades are taken on the confluence of the conditions above.
Indicators:
- Alternative Ichimoku (default settings)
- ADX MA BO (default settings)
Preferred Time Frames: 30-minute, 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- Price should cross above the ADX MA BO dots.
- The Cloud should reverse with the Leading Span A crossing above the Leading Span B indicating a bullish trend reversal.
- The blue line of the Alternative Ichimoku indicator should cross above the ADX MA BO dots.
- The ADX MA BO dots should change to blue indicating a bullish trend reversal.
- Enter a buy order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss on the fractal below the entry candle.
Exit
- Close the trade as soon as price closes below the blue line of the Alternative Ichimoku indicator.
Sell Trade Setup
Entry
- Price should cross below the ADX MA BO dots.
- The Cloud should reverse with the Leading Span A crossing below the Leading Span B indicating a bearish trend reversal.
- The blue line of the Alternative Ichimoku indicator should cross below the ADX MA BO dots.
- The ADX MA BO dots should change to red indicating a bearish trend reversal.
- Enter a sell order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss on the fractal above the entry candle.
Exit
- Close the trade as soon as price closes above the blue line of the Alternative Ichimoku indicator.
Conclusion
The forex market is quite unpredictable. Trends often do not last too long. For this reason, not all long-term trend trade setups would work. However, when they do work, the trades are often very rewarding.
This strategy is one of those high risk, high reward types of strategy. If you are the type of trader who is willing to take risks and could stomach drawdowns for the chance of hitting a home run then this strategy could work for you.
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