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The Ichimoku Cloud is one of our favorite technical indicators. The cloud is a set of moving averages and is actually comprised of six different individually calculated components.
There are many ways to use the cloud but one of the simplest applications is for day trade setups. To look for these setups we need a basic understanding of one of the components of the Ichimoku Cloud, the Kumo.
The shaded area of the cloud, known as the Kumo, is what we will use to determine the overall trend and its strength. Reading it is quite simple. Anything that is trading below the cloud is in bearish territory and anything that is trading above it is in bullish territory.
If the slope of the cloud is negative while the market is below the cloud the signal is stronger. To set up a simple day trade a trader will simply look to play in the same direction the cloud is indication. In this case, with the market opening below the cloud a trader would look to get short. This sets a trader up to be short all day and gives them a 1.
As you can see the market has already rallied against the trader but due to the limited risk nature of binary options a trader can hold this position without adding any risk. This strategy can be used for long or short setups and works best when the market moves through the cloud on the open.
This shows momentum and strength behind the trend. While many traders struggle with technical analysis the cloud is simple and easy to use. Any trader of any skill level can use opening breaks or intraday breaks of the cloud to set up trades. Traders can even use linger time frame charts to set up swing trades. The risk reward nature of binary options makes them an ideal instrument to use with the cloud. James Ramelli is an trader and options educator at AlphaShark Trading, where he actively trades futures, equity options, currency pairs and commodities.
As one of the moderators of the Live Trading Room, Ramelli educates members on strategies, trade setups, and risk management while trading his own capital. Ramelli holds a B. The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere.
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