Ok so when i was introduced to day trading no one gave me any good direction as to finding strategies with a high rate of accuracy. So I would like to take the time to give you the skinny on months worth of learning the markets and developing the most accurate indicator strategy I could come up with.
I played with moving averages and oscillators for weeks with little success. Most every broker i asked said not to rely on indicators as entry and exit signals and just go on price action. (Price action is still the best way to trade so understand price action, but as far as indicators go continue reading). The thing is that an indicator cant calculate until a bar closes, so all indicators lag price itself; so indicators tend to give a lot of false signals. Plus they give you a signal when its too late. None really give you a heads up on an upcoming trend or a developing trend so much. Except One, The ICHIMOKU KINKO HYO.
Most look at it and run because it looks complicated. Trust me its not! there is little literature or video info online because most people don’t use it or talk about it. My strategy incorporates four parts. 1) Fundamental analysis <news> 2) Price action <duh> 3-4) Technical Analysis: Ichimoku + Atr Tralling Stop
Ichimoku 101:
This indicator incorporates a few aspects Kijun, Tenkan, Senkou, Kumo, and Chikou.
Tenkan + Kijun= [average high of (x) periods+ average low of (x) periods]/2
Tenkan is usually 7 or 9 periods. Reason= 1.5x days in week of trading between old trade week length vs new trade week length.
Kijun is 22 to 26 periods. Reason= its the number of days in a trade month, new vs old.
So these two tools act as Moving Averages, BUT they take into consideration the full range of the moves and not just a smooth line based on the close of a price. When Tenken crosses Kijun and is above its bullish, if Tenken is below its bearish. Got it? Good!
Senkou is the same calculation but it is 52 to 44 for the number of weeks in a year… BUT it is moved forward 22 to 26 periods to project long term future trend development and projection. the Senkou also creates a cloud with its A span and B span. This is called the Kumo. The rule is as such, trade above and below the clouds if price is below the cloud, the trend is bearish, if its above its bullish, if its in the cloud its neutral. The cloud acts as strong support/resistance. So if it breaks through the cloud its called a kumo breakout and is a strong reversal signal. The thicker the cloud, the stronger the support/resistance.
And finally Chikou, the most simple and yet maybe the most important. It is price moved backwards 22 to 26 periods. When the Chikou crosses where price was 22 to 26 moves ago either above or below, it is a confirmation as to a bullish or bearish trend. Use these all in conjunction to weed out false signals and it makes for a great entry and exit strategy for any kind of trading on any time frame.
ATR Trailing Stop:
I however like to swing trade, and i simply use this indicator as my exit strategy. Like the ichimoku it takes the Average True Range of X amount of periods and makes a stop line based on the range of previous moves, looking to catch strong reversals before its too late.
Not many automated strategies can do this operation so you wont hear about it too much but it is my favorite strategy and I had wished someone had shown me these long ago when i first started. Dont be intimidated by the seemingly complex Ichimoku, that is in truth very simple. Its advantages are that it takes into consideration both Time and Range of previous price action in a way no other indicator can in such an incredibly visual way to show you trend plain as day.
