Ichimoku Trading: Signals at the London Open

For a general introduction to Ichimoku trading,  please refer to our Indicator Spotlight newsletter. In this post we follow-up on a specific Ichimoku trading setup, using the professional version. Specifically, we’ll outline how the Ichimoku can be used in conjunction with the London Breakout. A recording of a webinar event discussing this approach can be found here:

The London Breakout

The London Breakout is a well known Forex strategy centered around the London open. However, since the UK voted for leaving the EU, there looks to be more activity around the Frankfurt open. This moves the EU open forward one hour. The idea is simply to identify Ichimoku trading setups by locating breakouts signals following the European session open.

The breakout levels are found by looking at the high and low points set during the final hours of the Asian session. This is a 3 hour time window from 5:00 to 8:00 CET, when the markets open in Frankfurt. During this time period, the Multi Timeframe Opening Range indicator is used to define the High and Low areas of the range. The Ichimoku indicator is used to confirm whether the signal is accompanied by a trend and momentum bias. Furthermore, once a position is entered, the Opening Range is used to determine the Stop Loss and Profit Target levels.

ichimoku trading

Ichimoku Trend Definition:

In order to define specific trend definitions, our premium version of the Ichimoku Kinko Hyo indicator allows you to choose between eight (8) different parameters:

  • Price vs. Tenkan-sen (Tenkan Cross)
  • Price vs. Kijun-sen (Kijun Cross)
  • Tenkan-sen vs. Kijun-sen (Tenkan – Kijun Cross)
  • Price vs. Kumo
  • Price vs. Kumo midline
  • Senkou A vs. Senkou B (Senkou Cross) – 26 bars forward
  • Price vs. Chikou, 26 bars backwards
  • Chikou vs. Kumo, 26 bars backwards

The composite trend is displayed with paintbars (up, down, neutral). In addition to the trend reading, the premium version displays trade signals (Key and secondary). Finally, the premium version also comes with alerts (log and sound files) and a market analyzer scanner for trade signals and trend changes.

The Opening Range

The premium version adds a secondary minute bar series to the chart, which is used to calculate the range. Accordingly, it will display the correct range, even if the primary bar series does not contain the necessary information for its calculation. Furthermore, if using minute charts, you will want to use the premium version if the range period is not an integer multiple of the bar period.

The range period can be selected via indicator dialogue box you may display a custom open and the range of the first minute of trading after the start time selected for the range.

By default our premium Opening Range indicator also pulls the instrument trading times from it’s own databank. Therefore, it will always display the correct regular open and pre-session times when used with the NinjaTrader default instrument session template. This applies for the following exchanges: CME, NYMEX, CBOT, EUREX, ICE. The premium version may also be used with e-micros and cryptocurrencies. You may furthermore add your own additional exchange trading hours.

Range Weighted Average Price

Also, we look to align the breakouts signals with the broad and intermediate bias. This is done by looking at the Monthly and Weekly Range Weighted Average Price (RWAP). The RWAP is the less know “cousin” of the Volume Weighted Average Price (VWAP). Essentially, it is an important price benchmark that reveals institutional participation and dynamic support / resistance levels.

RWAP

Monthly Range Weighted Average Price

However, Forex instruments are not traded at a centrally located exchanges. The volume data is therefore unlikely to be representative of the underlying market. Using VWAPs with Forex instruments should therefore be carefully considered. Because volatility is roughly proportional to the square root of volume, a volume-weighted average can be mirrored by using the squared ranges as the weighting factor. Specifically, the Monthly VWAP / RWAP and the Weekly VWAP / RWAP can be used to see whether we’re in a broad/intermediate uptrend, or whether we’re in a sideways market.

To learn more about the professional version of the Ichimoku Kinko Hyo, Opening Range and Session VWAP Package, visit our premium section now.