Ichimoku Weekly Pivot Forex Strategy

Introduction

Pivot points are areas of possible price support and resistance. They are well recognized by the institutional traders who drive the big movements in the forex market. This strategy utilizes pivot points as well as the Ichimoku indicator to create a trading strategy, but with some element of difference.

The pivot points to be used for this strategy are not the regular daily pivot points we are used to, but weekly pivot points. We will therefore be using a customized indicator that will plot the pivot points automatically on the charts, and then trades will be pulled off from the 4hour and daily charts for the strategy.

Indicators
The indicators for this trade are:

  1. Weekly pivot calculator
  2. Ichimoku Kinko Hyo

The Strategy

The Ichimoku Kinko Hyo is a complex indicator which has several components. Each of these components can be combined in some manner to produce a strategy. These are as follows:

  • The Kumo twist: The Kumo or the cloud component of the Ichimoku indicator can undergo a twist with a noticeable colour change, which signifies a change in market bias.

 

  • The TK cross, which is the cross of the Tenken and Kijun lines of the Ichimoku indicator, can produce a change in trend, depending on the direction of the cross.

 

  • Price breaking out of the Kumo is also a trend-defining action, as the Kumo is generally held to be an area of consolidation.

 

  • The location of the Chikou span (another component of the Ichimoku indicator) relative to price action is another trend-defining action.

 

Along with these four possible signals provided by the Ichimoku indicator, we use the weekly pivots to further filter the signals, with price action bounce off a pivot point defining whether the trader should be bullish or bearish about the trade.

a) Long Trade
The long trade setup should be any of the following:

  • The Kumo twist: The Kumo display should twist to become an Up Kumo. If you are not sure whether it is the Up Kumo or Down Kumo is displaying, go to your MT4 client, click on Insert–> Indicators–>Trend–>Ichimoku Kinko Hyo. Click on “Colours” on the indicator pop-up window, look for the colour of the Up Kumo, then compare it with what you have on your chart.
  • The TK cross: The Tenkan line (red colour in our example) should cross the Kijun line (blue colour) in an upward direction.
  • Price break out of the upper border of the Kumo; in an upward direction.
  1. Chikou span should be above the price action candles.

Combine any of these with the price action bouncing off a pivot point in an upward direction. This means that even downward price movement that bounces off the R1 (coming from R2) or off the R2 (coming from the R3) in the presence of any of the four Ichimoku bullish parameters above will be considered a long trade signal.

Ichimoku_piv1

Here in this example, we can see three things which support the long trade:

  1. Price bouncing off central pivot in an upward direction.
  2. TK cross right on the central pivot.
  3. Up Kumo

Stop Loss

The Stop loss here would naturally be located below the central pivot where the trade was made.

Take Profit

R1 would naturally be the 1st profit target since it is the pivot point immediately above the central pivot. The price move broke the R1 and was headed to R2, then retreated back to the R1 line before it was rejected at the R1 now acting as support. The price eventually broke R2 and went all the way to the R3 resistance. Trailing stops must be used when price has approached a profit target so as to chase any further moves while protecting unrealized profits already garnered along the way.

Short Trade

Just like in the long trade, we have to ensure that any of the four Ichimoku parameters for the short trade are found on the charts:

  1. The Kumo twist: Down Kumo displaying.
  2. The TK cross: The Tenkan line (red colour) should cross the Kijun line (blue colour) in a downward direction.
  3. Price break out of the lower border of the Kumo; in an downward direction.
  4. Chikou span should be below the price action candles.

Please note that all the parameters must not be present for confirmation. Just one parameter with the pivot point entry is ok. The more parameters are fulfilled, the more likely it is that the trade will play out as expected.

Ichim_pivot2

In this example, we focus on the area marked with the blue circle. This is where there is a TK cross to the downside as well as a Down Kumo. The TK cross occurred at the central pivot, so this area would be the place to set a Short Trade.

Stop Loss
This would be set at a region just above the central pivot.

Take Profit

The next pivot below the central pivot is the S1 line. This was broken and was able to get down to S2. The trailing stop should therefore be used once price has broken below the 1st targeted pivot level so as to pursue more profits while conserving the unrealized profit already made.

Conclusion

This strategy requires the use of the Auto Pivot Weekly Calculator. To get your copy of the executable file, click here to download it.

Leave a Reply