Say the word “Ichimoku” to most traders, and the reply will be …
“Ichimo – WHO?”
If you manage to sustain their interest long enough to show them a chart…
They will usually start looking at their watches and shuffling nervously towards the door.
I don’t blame them.
I’ve given Ichimoku charts as wide a berth as possible in the past.
I’m constantly advising traders to “keep it simple” – so why the heck would you want to turn your price charts into a piece of abstract art?
But the Ichimoku is here to stay – and if you use the right charts indicator can be lucrative – so it’s time to bow down to the Sensei and start profiting from the inevitable headache.
Why I changed my mind about the Ichimoku charts indicator
Well, plenty of traders were pretty dismissive about Japanese candlesticks just a couple of decades ago – and now most of us wouldn’t be without them.
The trick to a really successful technical indicator is that it doesn’t make your price chart more complicated – it simplifies it.
You shouldn’t need to analyse how each of those coloured lines on your chart is formulated – technical indicators are there to do the hard work for us.
We just look at where the price is at in relation to the lines – and bingo! We’ve got our trade signal.
So, why have I had a sudden epiphany about the Ichimoku charts indicator?
Well, I’ve just started following a new trading strategy that has enabled me to read these charts without my brain hurting – no mean accomplishment!
If ever a trading system had been crying out for someone to come along and simplify it – Ichimoku was it!
I hope to bring you more details on this soon, once I’ve had a chance to put it through its paces.
A crash course in trading the Yen
I don’t really know why it is, but many Ichimoku traders follow the Yen.
Perhaps it’s simply because many Ichimoku traders are Japanese, or have a Japanophile bent.
Either way, if you’re going to use Ichimoku charts, you’re likely to hear a lot about the Yen.
And, even a technical trader should know a little about a currency that he or she is trading in …
Traditionally, the Japanese Yen was seen as a “safe haven” currency, along with the US dollar and the Swiss franc.
So, we’d expect the Yen to be strong at the moment. Right? Well, not exactly …
Before the financial crisis the Yen “carry trade” was massive (ie traders would take advantage of Japan’s low interest rate by borrowing Yen and buying currencies with higher interest rates). Therefore, whenever traders got jumpy and wanted to scale back their risk, they’d be piling money back into Japanese Yen.
However, the Yen carry trade is long gone. There’s no shortage of countries with very low interest rates that traders prefer to turn to.
Plus, fiscal problems in Japan have forced investors to look elsewhere.
And the disastrous earthquake in March has sent the Japanese economy back into recession, which has done little to help the Yen.
As the country puts the pieces of its shattered economy back together, markets are watching data releases very closely to see if the Yen can regain ground it has lost against other currencies this year.
Add to this mix the fact that the Bank of Japan isn’t shy about taking a hands-on approach to a bit of currency manipulation. A strong Yen will hinder Japanese exports, so any bullishness needs to be tempered by expectations that the Bank of Japan will step in with further interventions to keep the value of the Yen in check.
In the next seven days…
Sticking with things Japanese … the Japanese trade balance is released on Sunday night (UK time).
Japan lives and breathes exports. Last month, its April trade balance data saw exports fall by 5.5% and imports rise by 3.8%, which gave Japan its first April trade deficit since the 1980s. Expectations are that May’s figures will show the deficit increasing further.
Closer to home, we’ve the UK public sector net borrowing numbers on Tuesday. These may show that borrowing for the first two months of this financial year closely matched that of last year. However, it’s still early days to start counting up the deficit for this year.
There are also a number of surveys out next week on economic sentiment and consumer confidence in the Eurozone.
Across the Atlantic, we’ve US existing home sales (on Tuesday) and new home sales (on Thursday). These remain depressed, and the FOMC statement on Wednesday is expected to keep rates unchanged.