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To learn how to trade with Ichimoku, either read this article for starters, or go through our online trading course which has the best video content on Cloud Trading. The Ichimoku system can be used on all asset class, with liquidity as the only requirement.

We all know Ichimoku was designed to be a trend following indicator, meaning you get rewarded on monster trends because it keeps you in them, but suffer whipsaws because there can be little differences between a start of a trend and a start of a whipsaw. Take the ideal bullish setup for example, where these are the criteria:

• Tenkan Sen crosses above Kijun Sen
• Price above Kumo and Kijun Sen
• Chikou above price and Kumo
• Span A above Span B
• Rising future cloud

The above is more likely to lead to a bull trend, but the same setup can also lead to a whipsaw. And since every disciplined trader sticks to his system, getting hit by whipsaws is the cost of the trend follower’s game.

This article is written after interacting and discussing with many of our clients. One of the most often asked questions is, “how to avoid whipsaws?” One method is to employ conservative take profit levels.

Ichimoku looks complicated on charts, with so many lines with different colors, but to a seasoned Ichimoku trader, the lines require no legend and since you guys have been following us for awhile now, we will not define the lines. You should be able to identify them just by looking . Now Ichimoku is a dynamic and comprehensive system, and the discussion below only touches on some elements. It is NOT everything you need to know, just a few good ideas we came up with, and which we use.

By keeping conservative take profit levels, we look to catch the earlier portion of a trend or whipsaw (before the whipsaw).

The chart above shows a weak TS/KS cross bearish trigger, and bearishness confirmed by a kumo break later, and bearish future cloud formation. By most accounts, this is a bearish setup in the green box. For a conservative take profit level, we can use the Kumo shadow floor/ceiling (flat portion), which in this instance played out perfectly because it was indeed a whipsaw, which reversed after hitting the kumo shadow level.

Same for this bullish example:

We have a medium TS/KS bullish cross, followed by a kumo break, and hitting the Kumo shadow ceiling line, before reversing into a whipsaw. Note that Kumo shadows do not always exist, and are formed from prior strong trends.

Notice how in the chart below, in the absence of Kumo shadows, and presence of repeatedly twisting clouds, price is whipsaw-ing. Again in the green box we see how price hits the Kumo ceiling profit target, before ranging violently.

The above is just one example of using conservative take profit levels, to avoid whipsaws. But some of you are probably wondering now, then won’t we be avoiding trends as well, with profit levels that conservative? That’s a very good question, and a trade-off for avoiding whipsaws. One way to “have your cake and eat it” will be to take profit on half the position, and let the other half ride into the potential trend. Alternatively, you can simply eat what you can, so long as you are profitable.

The above discusses conservative take profit levels. We previously discussed conservative entry levels from retracements. It will be ideal to balance these 2 factors into a high reward: risk trade. This means determining your conservative take profit level, and then waiting for the opportunity to enter at a conservative entry level (ie. you are not far from the point at which the trade is wrong and void), such that your reward to risk is high. Of course you will miss out on certain trades, but your basket will be full of high reward: risk trades, which is great.

Let’s tie in these 2 factors with one example which played out a few days back on EURUSD:

See first the Tenkan Sen /Kijun Sen cross, which is a strong bullish crossover above the Kumo. We notice too a flat kumo shadow ceiling, which is a possible profit target. We then wait for a better entry.

The lime green horizontal line at the low of 12th April, was also the monthly pivot support. Prices retraced to this level twice, with close prices bouncing off the ascending red trend line. With the added support from the Kumo, the trader entered long at 1.3110, the trend line intersection, 77 pips from the profit target. A tight stop loss was placed below the monthly support pivot, also the low of 12th April. This was at 1.3095 and 15 pips from entry price, giving the trade a potential reward:risk of over 5x. Such a reward to risk ratio is high even by trend following standards. And it was a good trade.

*the above trade was executed and shared by our friend FX Hilton.

Please share with us any other strategies you have on avoiding whipsaws!