Tag Archive for: Ichimoku

The 4 Stages To Becoming A Millionaire Trader

What’s Inside?

  • The 4 stages to becoming a millionaire trader
  • What is the most important stage to making money trading?
  • What trading and mindset skills you need to become a profitable trader?

Since February of 2018, I’ve been envisioning how I want to build a complete trader training program that will teach you the stages, skills and mindset you’ll need to build to become a highly profitable trader who can pull a million dollars out of the market. I actually started working on this article over 6 months ago, and it has finally come to fruition.

If there was only one trading article you could read on my site, this would be it, so grab the popcorn as it’s a heavy hitter.

The goal of this article is to teach you about the 4 stages to becoming a millionaire trader. It’s designed to be a roadmap and structure for how to get from where you are now (likely struggling) to becoming a professional trader who can make a million dollars trading the markets.

millionaire-trader 2ndskiesforex

Before I get into the stages and roadmap, I have to explain a fundamental component and basis for this article.

Buddhism And Trading?

For the last 18 years, I’ve been training in Tibetan Buddhism, particularly in the Nyingma tradition. One of the amazing components of training in Buddhism is the ‘structure‘ and ‘stages‘ they clearly lay out for you. And a fundamental aspect of Buddhist practice has to do with the following formula:

Base, Path & Fruit

To explain this simply, the ‘base‘ is the starting point and foundation you build everything else upon.

It’s a fundamental level of direct experience and understanding you need to have to complete a specific aspect of your training. It’s arriving at the base which is what makes any practice, training or method work. Without this, you’re just wasting your time.

Keep in mind, it is not something you can arrive at ‘conceptually‘. What I mean by this is, it’s not something you can just read in a book and understand. You have to have the actual direct experience before you can progress any further.

Think of it like this:

Who would you trust more? Someone who’s lived in Buenos Aires (Argentina) their whole life, and knows the city, streets, traffic patterns, restaurants, various barrios, how ‘corruption’ affects their daily business, local customs, etc? Or someone who’s spent the last several years ‘reading‘ about Buenos Aires, looking things up on google, and watched youtube videos about it?

I’m guessing every time you’ll take the former hands down, which you’ll notice has nothing to do with ‘intelligence’. The person who’s lived in the city has a ‘direct experiential‘ knowledge about Buenos Aires that cannot be read in a book, watched in a video, or learned ‘conceptually’. It has to be a direct experience!

The same goes for the ‘base’ in trading. If it’s not a direct experience, you simply cannot progress any further. This is what I mean by ‘base’.

The ‘Path‘ is the practice, methods and training you use to get you to the direct experience. It needs to be a specific path which takes you from point A to B.

The path needs to be very specific and clearly demonstrated to produce real results.

The ‘Fruit‘ is what you get when you fully complete the ‘path‘ by using those practices, methods and trainings. It’s the ‘result‘ of what you get when you do the work, and it also should be specific.

If you have the base in place, then you can begin the journey. If not, you’ll need to arrive at the base (just like you have to arrive at ‘base camp’ to climb Mount Everest), before you can proceed any further. There is absolutely no way to skip steps here.

This entire training and article is built upon these principles of Base, Path and Fruit. Simply put, if you follow the structure I’m laying out here for you, your progression will naturally follow and you’ll see the results in your trading performance, mental execution and mindset.

Each of the 4 stages to becoming a professional trader has it’s own ‘Base, Path and Fruit’. Before you can progress to the 2nd stage, you’ll have to complete the first. There is no way around this! So if your goal is to make a million dollars trading, you’ll want to go straight for the first stage.

Becoming A Millionaire Trader (Stage 1)

The very first stage to becoming a millionaire trader is what I call the ‘Stage of Discipline‘.

The ‘base’ of this stage is having the direct experience and realization that:

a) your brain is currently not wired to trade successfully
b) you’ve had the experience of how your mind, emotions, and skill-set are currently not sufficient to consistently make money
c) have a real passion for trading, and
d) a mindset focused on growth

If you have those 4 things in place, you have the sufficient ‘base’ to begin the first stage.

By now, you’ve probably witnessed how your emotions affect your trading decisions (FOMO, not pulling the trigger, fear of losing money, risking too much/too little, etc). You’ve probably also noticed how you’re not consistently disciplined in your approach (system hopping, changing instruments, not sticking to your trading plan, etc).

Sound familiar?

If you’ve realized what you’re doing isn’t working, and that you’re lacking certain skills + training, but still have a passion to make money trading + are focused on growth, then congratulations – you’ve arrived at the base of the first stage. You’ve accepted the fact you (by yourself) cannot make this work, that you need a trading mentor + build new habits to succeed.

If you’re here, then you’re ready to actually begin the first stage, which is the stage of discipline.

The only thing you need to pack in your bags from here on out is a commitment to getting past this first stage. You don’t need to have the commitment to become a billionaire trader. Just having the commitment and openness to train is the minimal requirements to begin the first stage. Consider this stage to be your ‘apprenticeship‘ in becoming a successful trader.

The ‘fruit’ of the 1st stage of discipline is ‘consistency‘. If you don’t have consistency, you’ll never a) succeed in trading, and b) make it to the 2nd stage.

I say ‘consistency‘ is the ‘fruit’ of this stage, because it’s what you get when you have a solid level of discipline in place. Without this, there is no progression in trading, and you’ll continue to make the same mistakes over and over and over again.

Does this sound like your current experience?

Thus, discipline is what helps you exit out of that cycle (repeating the same mistakes). It’s the force which allows you to break through your current bad habits around trading. It’s what allows you to execute the same things over and over again, regardless of the emotions you feel, or obstacles you come against.

Consider discipline a type of ‘armor‘ against that which will knock you off your horse and derail your progress. Essentially, it protects you against yourself, and is absolutely necessary in trading..

From my experience, both in Buddhism, and in trading, it actually has to get worse before you give up your current approach (which likely isn’t working). You actually have to suffer to the point you realize “I no longer want to suffer like this. I’m open to trying it differently.” This realization creates the first real opening for you to get out of that vicious cycle of repeating the same mistakes over and over again.

The ‘path‘ of the stage of discipline is the most intricate and nuanced part of your trading progression. It’s the hardest part of the mountain to climb, and requires the most effort on your part. This is because you’re going to be fighting against much of what you currently are, which by definition, is insufficient to consistently make money trading. If you were already there, you’d be doing it.

The ‘path’ has to consist of a series of methods and skills (trading and mindset wise) you’ll need to build to get to the ‘fruit’.

Practices & Methods For the Stage of Discipline

As stated before, the goal or fruit of the stage of discipline is consistency. This means consistency in your execution, decision making process, trading strategies you are using, what instruments you trade, risk management, etc.

Consistency, however, has a ‘root cause‘, meaning the root of what it grows out of. As I’ve stated before, consistency can only come from the mind. If you do not have consistent thoughts, thinking patterns, neurological structures, mindset, (etc) there will be no consistency in your trading. Hence your focus for building ‘consistency’ has to primarily consist of (and begin with) your mind.

If you are currently not experiencing any sort of consistency in your trading, then congratulations, you’ve discovered the root cause of your inconsistency (your mind). Now your initial goal in trading and becoming consistent may seem counter-intuitive, but I’m guessing you’ll find it makes sense when you fully understand it.

Your initial goal in trading should be to become a ‘consistently‘ losing trader. Now many of you are likely thinking “I consistently lose now, why would I want this?” While that may be true in ‘form’, it’s not true in ‘essence’. What I mean by this is, while you may be consistently losing money, there are likely many components of your performance which are not ‘consistent’.

Some of these components can be:

  1. Risk Management – are you consistently risking the same % per trade? If not, then you’re not ‘losing consistently’.
  2. Trading Instruments – are you consistently trading the same instruments till you have a sufficient baseline to make a quantifiable decision? If not, then you’re not ‘losing consistently’
  3. Times of the day – are you consistently trading the same times of the day? If not, then you’re not ‘losing consistently’
  4. Pre-trade preparation – are you consistently preparing mentally for your trading day with the same routine? If not, you’re not ‘losing consistently’
  5. Pre-trade analysis – do you have the same consistent routines and methods (price action, ichimoku cloud trading, etc) for finding trading setups? If not, then you’re not ‘losing consistently’
  6. Post-trade analysis – do you have the same consistent routines and methods for analyzing your completed trades? If not, you’re not ‘losing consistently’
  7. Reinforcing successful trading habits – do you have the same consistent routines and methods for reinforcing successful trading habits? If not, then you’re not ‘losing consistently’
  8. Trading plan – do you have a detailed trading plan which has clear instructions for how to trade, how to train, and how to progress in your trading? If not, then you’re not ‘losing consistently’

I could go on as there are many other variables you’ll need to ‘lose consistently’, but my guess is, when you read the above and really take it all in, you’ll realize that you’ve been ‘losing money’ consistently, but not ‘losing consistently’. There a difference.

It takes discipline and a courage to say “I’m going to focus on consistently losing”, just like it takes discipline and commitment to not hit the target consistently in archery. But that is your initial goal in archery (not just hitting the target), but ‘consistency’ in your technique, process and movements. If there is no consistency in your stance, alignment, breathing, holding of the riser (main bow structure), how you grip the bow string, how far you pull it back, etc…there will be no consistency in where your arrows land.

(Image: Brady Ellison – #1 US Archer – Recurve Bow)

Trading is no different!

Hence in sounding somewhat masochistic, your initial goal in the first stage of discipline is to learn to ‘lose consistently’. By doing this, you’re building the foundation which the entire house you want to build will rest upon. Then you can focus on being a consistently break-even trader. Then you can focus on being a consistently profitable trader.

But before all this, you’ll need to focus on building the prerequisite trading skills, which can be defined as the following:

1) Trading Methodology & Approach

There are only 4 major trading methodologies, or approaches to the markets. They can be any of the following; 1) technical, 2) fundamental, 3) sentiment, 4) flow based.

Now any one of these can fall into broad categories, such as (discretionary, rule-based, hybrid, quantitative).

The approach I teach is a ‘technical‘ model based upon understanding price action context and the order flow behind it. I teach this method because it can be applied to any instrument, time frame or environment, and is based upon what all trading decisions are based upon (*information).

Regardless of whether you are a technical, fundamental, sentiment or flow based trader, all trading decisions are derived from ‘information’. Eventually that information has to be converted into an actual trade (and thus order). All ‘activated’ orders become ‘actualized’ order flow. And order flow is the most proximate driver of price action.

This is why I teach price action context and the order flow behind it, because I’m teaching you a ‘root’ method which communicates the footprint of all orders and trading decisions. By understanding these, you can give yourself the highest probability for trading with the dominant order flow in the market, which is what drives all price action. By doing this, you can learn to trade with the larger players who will most likely dominate directional price movements (which is what we want to capitalize on).

price-action-2ndskiesforex

Price Action Trading Skills

There are many price action trading skills you’ll need to build, and it is important not to learn these skills out of order. I often find traders trying to learn more advanced skills before they’ve built a solid set of foundational skills. One common example is struggling traders trying to trade counter trend before they’ve learned to trade with trend (with the latter being easier).

Now assuming you understand what candlestick charts are, time frames, and what the basics of price action are, then you’ll need to build your core skills of price action. In price action trading, the first set of ‘core’ skills you’ll need to learn is what I call the 3 pillars of price action context.

I’ve talked about the first pillar of price action context, which is being able to identify impulsive and corrective moves. The reason why this is the base pillar is it gives you the most amount (and most nuanced) information about the price action and order flow happening right now.

It tells you who’s in control of the market (buyers/sellers), and who’s not. It tells you how to read momentum in the price action without any indicators. It tells you when are optimal times to take profit, and not take profit. It tells you when you’ll need to be patient, and when you need to make a quick decision. It tells you when trading breakouts are more likely (or more probable) to occur, and when they are less likely to succeed.

impulsive-and-corrective-price-action 2ndskiesforex

There is a lot more impulsive and corrective moves can tell you about price action, but by learning these, you start to learn how to think like a price action trader, and see the dominant order flow behind it. This is why it’s the first pillar. If you want to learn about the other two pillars of price action context and the order flow behind it, then check out my price action course where we talk about this extensively.

Now before you can even practice these skills and making actual trading decisions, you’ll need to first be able to identify (with 90+% accuracy) these 3 pillars of price action context. My formula for how to build your trading skills (and price action skills) is simple:

Sim, then Demo, then Live

What this means is, after you’ve watched videos and understood (conceptually) the components of an impulsive and corrective move, you’ll want to start building your pattern recognition skills in the charts. You build these pattern recognition skills so you can identify them automatically, and thus, sub-consciously.

If you’ve ever looked at a chart and had the thoughts, “Is this a such and such pattern? I’m not sure, how do I know? I know it said it has to have x, y and z, but is this part the same, or is it different…“

Have you had this experience before? If so, then your skills are not ‘sub-conscious‘. The reason why this is important is you want to use your cognitive thinking, analysis and bandwidth for finding profitable trade setups. If you have all those thoughts going through your mind, then congratulations – you’ve now realized your skills are not sub-conscious, so that should be your next goal.

By starting with a trading simulator, you can have the opportunity to watch the price action unfold, pause it, take time to read it correctly, then resume the historical price action on the chart unfold.

trading simulator 2ndskiesforex

This is why sim is the best place to start, because on demo, the charts just keep moving on whether you got the analysis correct or not. Just like pilots start off in a flight simulator to make sure they have the basic functional skills to fly a plane, you also need to start off on a simulator.

By looking over thousands of candles and charts in a short period of time via a trading simulator, you can increase your learning curve, and accelerate your pattern recognition skills, particularly being able to identify impulsive and corrective price action.

Once you’ve seen enough impulsive and corrective moves, your brain will eventually assimilate these patterns into its database, and be able to identify them on any instrument, time frame or environment with ease (and without doubt).

After you’ve mastered all 3 pillars individually, the next step is to assimilate them together into one cohesive picture (or gestalt). The goal here is to be able to easily identify all three of the pillars of price action context, then be able to come up with a ‘most probable’ direction of the market.

I say ‘most probable’ because this is a mindset you’ll need to develop to make it out of the first stage of trading. Beginners try to use ‘confirmation price action signals‘ because they think they ‘confirm’ the trade and direction. But 1, 2 or 3 candles is a small amount of price action + order flow, and rarely ever dictates the next move (~1% of the time).

Hence you have to shift your mindset from ‘confirming‘ (because there is no certainty in the market) to ‘probabilities‘, because probabilities is all you are ever dealing with. There is no certainty, and never will be when it comes to price action and the next direction. This is why I say confirmation price action signals will crush your account. If these so called ‘confirmation price action signals’ actually ‘confirmed’ anything, there would be ample statistics and data to back that up. Yet nobody to date has been able to provide this (which should tell you everything you need to know about them).

Now while you’re building your core price action trading skills, you’ll also need to build your mindset skills. To succeed in trading, you’ll need a successful mindset which will keep you on track when things are challenging, and help you execute what you need to when your trades and emotions are really affecting your thoughts and trading decisions.

Mindset Skills to Build Consistency In Your Mind

If you’re working towards consistency in your mind, there are several core mind/mindset skills you’ll need to build. For the purposes of brevity and not turning this into a long novel, we’ll talk about the 3 most important mindset skills you’ll need to build consistency in your mind and make money trading.

The first mindset skill you’ll want to build is understanding how the brain works. By understanding how your brain and mind work, you can accelerate your learning process by working with how your brain functions, not against it.

One of the most fundamental aspects of the brain is its ability to re-wire itself. This principle is called neuroplasticity. 

Neuroplasticity can be summed up by the following phrase:

“Neurons that fire together, wire together”

Neurons are the basic neural cells you have in your brain. They connect to each other through axons and dendrites. By connecting to each other, they can pass information via electrical signals.

If you want to wire in a new trading habit, you’ll have to activate neural circuits which do this over and over again. By doing this over and over again, they strengthen those connections till they become ‘dominantly wired‘. Another term for ‘dominantly wired’ is ‘habit‘. Anything you have dominantly wired in your brain is a habit. So by firing the same neurons together, they wire together and form specific habits you’ll want and need to build a successful mindset.

This is where understanding how the brain works helps.

There are 7 components to neuroplasticity, but there is one fundamental ‘root‘ component behind all neurological wiring: Repetition.

By repeating the same thing (and thinking pattern) over and over again, you can wire in the trading habits you’re looking for.

It’s why basketball players will shoot free throws every day in practice. It’s why quarterbacks (American football) will practice throwing the football over and over again, so that their mechanics are automatic and sub-conscious. It’s why Bruce Lee said “I fear the man who practices one kick 10,000 times“, because such a person has that has practiced a kick 10,000x likely can throw it with speed, precision and power.

Repetition is the most fundamental building block to wiring new trading habits. Thus, understanding how the brain works is a fundamental mindset skill you’ll need to develop.

The second mindset skill you’ll need to build is what I call the GBT mindset. GBT = getting better today (also known as a ‘growth’ mindset).

growth-mindset 2ndskiesforex

Notice the focus here isn’t ‘profitable trading now‘. It’s a trading mindset that works every single day to get better. By getting better today at your skills, you eventually build enough skills and competence to make money trading.

The GBT mindset is one that is focused on the process, and has a well designed process + skills + goals they are focused on. The process aspect is the methods and plan of action you engage to build your skills, which allow you to reach your goals.

If you’re just focusing on the results “dang, I’m still not profitable yet“, then you’re jumping too far ahead and not focused on what you need to succeed (skills: 1) technical, 2) risk management and 3) mindset). Hence your ‘goal’ right now if you’re not a profitable trader should be to build the skills to make money trading.

This is why you need the GBT mindset, and an approach which focuses on building your skills step by step, and getting better today at your current level of skills. Then once these are sub-conscious, you take on the next challenge.

The third mindset skill you’ll need to build to become a consistently profitable trader is ‘self-awareness‘.

Now I’m not saying you have to become a zen monk to become a good trader. But you’ll need to develop a minimum level of self-awareness to make money trading.

Why?

Because if you really understand how the brain works, you’ll realize you are actually fighting your own brain and evolution to build a successful trading mindset.

How so?

Let me demonstrate this with a few key brain facts:

  1. You have about 500% more neurons for finding the negative vs the positive
  2. You are more likely to choose an immediate reward (even if it is a lesser reward) than delay gratification (for a larger reward)
  3. Your emotions heavily influence how you interpret (and code) an experience, memory or event

Now lets examine these 3 brain facts.

The first one should be obvious as to how it can affect your trading. If you are 5x more likely to notice the negative vs the positive, what do you think that means when you make a mistake, or a trade starts to go against you? How do you think that will affect your thinking in real time when you have to make clear, calm trading decisions? Do you think it will help, or hurt your decision making process?

Ever experienced a trade that was a winner but starts to go against you? Were you totally relaxed, or feeling ‘stress’ when it started to pull back? And do you think that stress affected your analysis and decision making? This tendency to notice the negative vs the positive is called the negativity bias.

What about the 2nd brain fact? Ever chose to exit a winning trade too early? This is your brain working against you. If you’re more likely to choose a lesser immediate reward, don’t you think that will become problematic in making decisions which will lead toward long term success and trading habits?

In terms of the 3rd brain fact regarding emotions, just think about the majority of emotions you’ve experienced in trading. Have they been mostly positive or negative? Have they mostly helped or hurt your trading process, thinking and mindset? Do you even know how to use emotions to your advantage in trading? My guess is no.

Hopefully it is becoming clear why self-awareness is key. You can determine if the self-talk that’s going through your mind is accurate (“something doesn’t feel right about this trade“), misleading (FOMO, fear of pulling the trigger, etc), or not important (“I wonder how many people liked my last tweet”).

By building self-awareness, particularly around trading, you can learn to know when you need to stick to your discipline and/or trust your gut instincts. You can also learn how to self-regulate your mind, emotions and psychophysiology so you can make the most optimal trading decisions.

Simply put, if your biology and psychophysiology is off (heart rate, breathing, skin conductance, etc), the chances of you making a bad trading decision go up exponentially! And more often than not, the difference between making money trading and losing money trading comes down to the trading mistakes you make.

Becoming A Clutch Performer

The term ‘clutch athlete‘ is actually misleading. When the game is on the line, the statistics are clear. The best performers are not performing at their peak, or above their baseline. They’re actually performing below their baseline. The difference is, they make the least amount of mistakes compared to their baseline, while the non-clutch performers make more. This is why specific athletes are clutch, because when the game is on the line, they make the least amount of mistakes, and thus outperform everyone else.

Trading is a peak performance endeavor that is skill based. There is no way around it!

This means you’ll have to learn how to become self-aware when trading gets intense. If you want to make a million dollars trading, you’ll need the 3 mindset skills I’ve listed above when you have 5 or 6 figures on the line.

By becoming more self-aware, you’ll start to build the psychological and mindset skills to become a consistent trader who makes ‘consistent’ trading decisions, regardless of the pressure or challenges you’re experiencing while trading. You’ll be able to direct your cognitive and mental activity in the right direction, while avoiding getting swept up by your emotions, or negative self-talk.

There are many ‘methods’ and practices you can use to build self-awareness. I teach several of these in my traders mindset course. But one method we focus on in our traders mindset course is meditation, which is scientifically proven to help improve your neurological and cognitive performance in a variety of trading activities.

meditation for trading 2ndskiesforex

I’ve been practicing meditation since 2000, done over 10,000 hours of meditation practice. I’ve completed a 1 year meditation retreat. I’ve completed 3 one month retreats, about 150+ weekend meditation retreats, and trained with the same meditation teacher since 2001. Needless to say, it seems fair to say I have a ‘solid’ training in meditation.

I recognized early on how important meditation is to my trading mindset, and thus created a 12 lesson meditation series specifically for traders. The goal of this practice is to build self-awareness, increase your emotional IQ, and help you enhance your brain’s functioning, which meditation has been scientifically proven to do. If you want to learn more about how to use meditation to become a better trader, then check out my traders mindset course.

Now there are many techniques you can use to build a successful trading mindset, but these are three most ‘fundamental‘ I’d highly recommend you focus on. There are other mindset skills you’ll need to complete the first stage of trading (discipline) and get to the fruit (consistency), which could take me an entire book to write and flesh out. But I feel I’ve given you a glimpse of the first stage of trading.

Getting Past the Hardest Stage (*And Not Jumping Ahead)

From my experience in working with thousands of traders, helping many traders become profitable, I’ve seen how every trader which has failed to become a profitable trader has never completed the first stage. They’ve either a) never built the mindset skills to become a ‘consistent’ trader, b) never built the core foundational skills, or c) tried to skip various aspects of both.

From all the students I’ve trained that have become profitable traders, they’ve all completed the first stage without fail. I’ve yet to meet a profitable trader who is able to make money consistently while skipping the first stage. There is no way around it!

Now if you want to learn about the other 3 stages to becoming a million dollar trader, I’m doing a private member webinar this weekend (Dec. 22nd) for all my course members. After the webinar, I’ll be making this webinar available to all my members so they can follow this road map and become consistent traders.

If you want to learn how to become a member, click here.

Now I hope you’ve gotten a tremendous amount of value out of this article, and use it as a guide and road map to your successful and profitable trading.

Please make sure to leave a comment, and share this with any friends or forums you feel will benefit from learning about the stages to becoming a million dollar trader.

Until then, may you see real growth in your trading and mindset.

Weekly Price Action + Ichimoku Setups & Trade Ideas | Sep 29 – Oct 4

Chris Capre’s current live open price action & ichimoku trades: AUDNZD, CORN, WTI, USDCHF, USDMXN

New to Forex? Then check out my FREE Learn Forex Trading Course with videos, quizzes and downloadable resources

Want to find unique trading opportunities? Check out my latest trading video on how to find dynamic support & resistance.

AUDNZD – Sitting On Top of Role Reversal Level (daily chart)

Price Action Context

The overall price action context on the AUDNZD has been bullish since the RBNZ rate cut. The forex pair recently broke through a key role reversal level around 1.0710 creating a great breakout pullback setup. ST bulls can watch this area for potential support. As long as this holds, the line of least resistance is up.

audnzd role reversal level

Trending Analysis

ST bullish while above 1.0710. MT bullish while above 1.0475.

Key Support & Resistance Levels

R: 1.0825, 1.0948

S: 1.0710, 1.0475

Stay tuned to the members market commentary for updates.

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GBPCHF – Short Trade Idea on Break of CS Profits (1hr chart)

Price Action Context

In our recent market commentary, we talked about the ST corrective structure on the GBPCHF and intimated the bulls would start unwinding their longs and put bearish pressure on the pair.

We also suggested a break of the ST support level around 1.2334 would create a selling opportunity. As you can see from the chart below, this is exactly what happened.

Congrats to the members who profited from this trade setup.

gbpchf corrective structure 2ndskiesforex

Trending Analysis

ST & MT bearish while below 1.2334 on a weekly closing basis.

Key Support & Resistance Levels

R: 1.2334, 1.2260

S: 1.2184, 1.2012

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USDJPY – ST Bullish Ichimoku Structure, But MT Bearish (daily chart)

Ichimoku Context

ST the ichimoku structure on the USDJPY pair is bullish as the pair is currently above the daily kumo, and had recently pulled back to the flat bottom and bounced solidly.

usdjpy ichimoku trading 2ndskiesforex

Trending Analysis

ST bullish while above the daily kumo on a closing basis. MT still bearish while below the A or D swing point around 109.02

Key Support & Resistance Levels 

R: 109.02, 110.57

S: 107.03, 105.24

What Kind Of Forex Trading Strategies Do You Use?

A question I got today from one of my facebook followers said “Hey Chris, what kind of forex trading strategies do you use and how do you use them?” This was too big a question to dole out over my 2ndskiesforex facebook page, so I decided to write a short post about this.

What Forex Trading Strategies Do I Use?

Although I use the same strategies I do for all markets, these are the ones I use for trading forex as well, which can be grouped into two main classes:

Price Action & Ichimoku Cloud Trading

Regardless of the asset class, I trade price action and ichimoku cloud trading, however I use them both differently to some degree which I’ll clarify.

Price Action Trading

As a whole, I’m always using price action because I consider it to be a ‘core’ or fundamental skill. I am always using my price action skills regardless of the instrument, asset class, time frame or environment.

2SF-Trading-Article-2017-05-Impulsive-move-1024x492

So I can be trading price action strategies on the 1 minute, 3 minute, 5 minute and 1 hour time frames for day trading, or the daily and 4 hour time frames for swing trading. I can be trading price action on forex, futures, stocks, commodities, global indices, CFD’s, forex options – you name it. And I’m always using my price action skills in any environment (trending, ranging, choppy or clean).

It is such a fundamental skill – very much like a good football player is using footwork, that I’m always using it and applying these skills on every chart.

Make sure to notice my use of the word ‘skills‘ here. It’s important you understand why I’m using that (which I’ll elaborate more on later).

Ichimoku Cloud Trading

Ichimoku cloud trading as a whole is what I consider a more ‘specialized‘ skill, so I’m not using it on every chart, and am applying it in a much more specialized way. I don’t consider ichimoku to be a core skill, but I do consider it to be a powerful one when understood and used properly. Ichimoku will give you a unique perspective on future support and resistance levels, what the underlying momentum is (strong, medium or weak), what the current ichimoku wave structure is like (and will likely look like in the future), where are potential turning points, etc.

live-ichimoku-trading-2ndskiesforex

I apply ichimoku pretty much on any instrument, however one main difference is I don’t really trade it on lower time frames, so any time frame below the 1 hour chart. That is because my testing really hasn’t found it to be stable enough on lower time frames.

Is it possible you can use on those lower TF’s? Yes, but I haven’t found a consistent skillful way to do it over time. The time frames I trade ichimoku on are the 1 hour, 4 hour, daily, weekly and monthly.

So in essence, I’m using it for more short term swing trading, medium term swing trading, and for some long term trend changes to capture some really large moves, moves that may take months to fully deliver, but could often be in the 500-1000+ pip plus range. The longer moves often add a second income through the carry trade, so an opportunity for two incomes on the trade.

Getting Back To Skills

If there is one thing I’ve learned which has separated me from most trading mentors, is that, just like great athletes focus on continually building their skills, I focus heavily on building trading skills.

I’ve seen some forex trading mentors churn out trading strategy after trading strategy, sometimes 20+ over the years. However if you notice, the strategies they came up with 5+ years ago they are not using today. Meanwhile, I am still using many of the same strategies from the last 5 years, and they’re still effective as I’m a verified profitable trader.

What’s the difference between me and the strategy churners?

My core focus is on trading skills because trading is a skill based endeavor. It’s not a ‘strategy’ based endeavor, but a skill-based endeavor. When you realize this, you’ll see a major change in your mindset. You’ll start thinking like a millionaire trader.

If you have solid trading skills, you’ll be able to adapt to any market, and the market is always changing. This is why so many struggling traders fail to make money. They think short term. They think they only need a trading strategy to make money in the markets.

Think about it like this: would you ever walk into a martial arts school, and ask them “Can you give me a martial arts strategy for beating up someone 6’3″ tall?” Of course not, because there would be no one strategy for that person, and even if the sifu could give you one, without the proper skills to execute that strategy (stance, footwork, punching/kicking technique, muscle memory, strength, speed, accuracy, etc.), it would be completely useless.

The path to becoming a black belt in any martial arts is paved through building skills.

Hence, if you’re just thinking you need a winning strategy to make money trading – you’re using the wrong approach. What you need are trading skills that work on at least one instrument or asset class across multiple environments, and ideally across all time frames. If you have that, then you’re adaptable and have a set of skills which allows you to handle all the environments you will encounter.

Hopefully you can now see why a profitable trading strategy alone is insufficient to make money trading long term.

So there you have it – those are the two forex trading strategies I use every day when I’m trading the forex market (along with trading stocks, futures, options, commodities, global indices and CFD’s).

I didn’t get into any specific price action or ichimoku strategies. If you want to learn more about my specific trading strategies, you can check out my price action course, or my ichimoku course where you will learn exactly how I trade those strategies day in – day out.

I hope you enjoyed this trading article. Don’t forget to leave a comment sharing your thoughts below.

Until next time, may you find real progress in your trading performance and mindset.

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An Unconventional Approach to Your Trading Mindset

Today I’m going to share an unconventional approach to creating a successful forex trading mindset I employ every day before I hit the buy/sell button. A small confession though – it actually took me a while to realize it was a major ingredient in my success.

The funny thing is, I never read it in any trading book, video or blog. Perhaps it should be – perhaps it needs to be talked about more often, because doing this one thing has changed my mindset in trading and life.

So what is this one unconventional approach I’ve used that’s help to build a successful trading mindset?

Read more

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What You Need to Do to Make Money Trading (Part 2)

In part 1 of What You Need to Do to Make Money Trading, I wrote about how you need to get comfortable – particularly with uncertainty as to what will happen next.  Your ability to sit in the saddle of uncertainty will determine your ability to make good trading decisions which leads to more profitable trades.

In part 2, I will delineate why you need to get comfortable with yourself in trading and what this means.

Getting Comfortable With Yourself
When I first started taking archery classes, I had to decide if I wanted to shoot a recurve or compound bow, as they definitely differ in their shooting styles, techniques, handle, potency and uses.

My teacher asked me which I prefer after a few classes, and I took a moment to think about why I was taking archery classes in the first place.

For me, I was taking classes for twofold reasons;

1) As a complimentary skill for trading (concentration, focus, precision and awareness in the moment).  

2) As a meditation practice

To this end, the recurve bow felt more suited to this.  Even though it’s not as powerful, or cannot shoot the same distances as a compound bow, power or distance was not the motivation behind my archery training.  Hence why I shoot a recurve bow to this day.

This process for you getting comfortable with yourself has to be done in a similar way.  You have to really understand who you are, how you best operate, what environments does your natural talents/skills/intelligence prosper, along with what are your specific trading goals for trading.

getting comfortable with yourself trading 2ndskiestrading.com

My guess is when you have figured these things out, the system and method will be just naturally arise and be obvious.  But don’t fall into the trap of thinking you have to gun for ‘the most profitable’ system, or trade on any time frame to be profitable.  You’d be amazed how many times beginning traders ask the question of ‘what time frame do you trade‘ or the more common is ‘what is your most profitable system‘.

Anytime I see this, I can see they are asking the wrong questions. Making money is not time frame dependent – as if one time frame has a monopoly on making profits.  And looking for the ‘most profitable system’ really is ignoring the fact it may not be the best one for you.

It may trade only when you are asleep, or at work. Or it may force you to hold trades for days when you prefer to be out out at the end of the day. What use is it to you then?

A Good Trader
I can always tell a really good trader when I talk to them.  They are never worried about what someone else is doing, how much they are making, or what system they are using.  I personally know a trader that did 3000% one year with over 90% accuracy making at the end of the year over 200k a day.

Yet he is an engineer who is highly mathematical, and employs a system that took him 8 years to learn with his level of mathematical skills (way above mine).  Using that system would actually be counter-productive for me, my time and my natural way of thinking.

Eventually, a good trader has settled into two things;

1) They’ve settled into how they operate best when trading

2) They’ve found a rule based system that works for them

To do this, you really need a little bit of trial and error, but it also takes some self-reflective ability as to how you are as a being.

Do you prefer to micro-manage things, and does this usually work out for the better?  

Or are you best using set and forget strategies?  

Are you really available to trade several hours a day, and do you want to?

Or would you prefer to only ‘participate’ in the markets a couple hours per day?

Are you really risk averse, or are you comfortable with risk and volatility?

Answers to the above questions could determine what is the best strategy, pairs and style of trading you engage in on a daily basis. The bottom line is, if it’s not a fun car for you to drive, it doesn’t really matter what kind of car it is.

You can always tell if you are uncomfortable with a system, if it racks your brain, patience and emotions using it.  If you feel drained trading it – regardless of profit or loss, then it’s likely not for you.  However, if you feel this with every system you use, then the issues may be more on the psychological level with how you relate to trading. This is simply because the common demoninator is you – not the system.

I myself trade both intraday price action strategies, along with higher time frame methods.  I also trade both price action and ichimoku models because the combination of the two is what works for me. I like a balance between being engaged for a couple hours per day, while also holding positions overnight so I can make money sleeping, and just let them play out.

In a recent article called The Ideal Trader, I explained how combining intraday + daily and 4hr price action strategies, is ideal because it allows you to quickly grow your account (via intraday trading), while also making money sleeping.  But the key for you is to find a system and style that is tailored to you across the board, and provides the soil for your natural talents, skills and intelligence to grow and flourish.

forex trading tailored for you 2ndskiestrading.com

Until then, trading will likely be an uphill battle against you – not the markets. But once you’ve found a balance of what’s most natural for you – it will result in you being consistently profitable, while finally feeling settled with trading and the markets.

The next article for this week will discuss always trading and thinking in probabilities.

Kind Regards,
Chris Capre

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End of The Trading Week – What Are You Doing?

Hello Traders,
It is now the end of my trading week and I wanted to ask a critical question:
When the trading week ends, whether it has been a winning or losing week, and you know you will not make any more trades, what do you do?
Most typically shut down the charts, close the platform down, exhale and then walk away.
If it has been a winning week, I’m guessing many of you go for a drink to celebrate your hard work. For a losing week…I’m guessing many of you go for a drink to forget about your mistakes and what you lost.
Instead,  I suggest trying another path.
Reviewing the Tape
I noticed a long time ago the best players and athletes spend tens of hours per week reviewing tape. They are looking for what they did well, but also zoning in on their mistakes, so they know what to spend energy on correcting.  Ironically, some of the best traders I know do the same.
If you are really passionate about this, and are excited to get back to the chair (win or lose) after the day, week or month – then you’ll come back and work on your mistakes while re-enforcing your successes.
Oftentimes, the difference between a successful and unsuccessful trader, is doing all the little things which add up to a big result.  Taking time to review your trades and performance is one of those little things that has a far reaching reward.
There are many ways you can do this easily, using programs such as Jing, Screencast or Camtasia, which are all done by TechSmith (some are free).
How I do it is I have a folder, with sub folders for each month and week.  After a trade is done, I take a screenshot (or video), color code the trade (green for a win and red for a loss), and put them in the trading folder for that week. Below is a screenshot from a live trade I video recorded, which I shared in the member traders forum.
live price action trade gbpjpy chris capre 2ndskiestrading.com feb 1st
When trading is done for the week, after getting a brief cup of tea, I come back and sit down for my analysis on what I did well and what I need to work on.  Sure, at the end of the week, I’m a bit tired.  But I love what I do, and dedicate a ton of energy to becoming a better trader each day, to increase my skill and craft.
What I often find is there are patterns in the price action, or Ichimoku, that repeat themselves in my winners and losers.  These patterns get stored in your long term memory and central nervous system.
If you do this enough, when you are trading in real time, you will be better able (and prepared) to spot patterns, either consciously or unconsciously, which will lead to finding and making better trades.
You will spot patterns on whether it’s time to reverse and go short, or time to exit a current trade, or time to enter before a big move.  All of this review builds pattern recognition skills which lead to automaticity – a critical tool for success and mastery of any skill.
Trading is a constant learning process – it never ends, and that means a constant effort and fine tuning of your skills. So the next time your week ends, consider taking a moment to review your week of trading, and build a little habit that goes a long way.
Kind Regards,
Chris Capre

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My Top Trading Mistakes for 2012

The learning process never ends for a trader.   The market is always evolving and you have to adapt. Algorithmic trading was about 3% of the FX market in 04′.  Now 28% of it is just HFT’s alone! Think that has changed the intraday price action?  Absolutely!
Thus, you must always be learning, evolving and challenging yourself.  There are always refinements and greater depths to what you are doing, whether you are trading price action, ichimoku or other rule based systems.
Regardless of your skill level in trading, you are going to make mistakes.  I make mistakes, but I learn from them with alacrity.  I quickly analyze what I did wrong, visualize what I would do differently, clear my mindset and get back to business.   The difference between a professional & beginning trader is usually two-fold;
1) they make less of the typical mistakes beginners do
and
2) they rebound much faster, control the damage quicker and get back to business
Analyze your last year of trading in your journal.  I’m willing to bet if you eliminated just one or two mistakes you continually repeat, your current losing year would have been a profitable one.  If you ended the year break-even, then it likely would have been highly profitable.
Eliminating mistakes is one of the fastest ways to profitability. The sooner you discover, eliminate and transform them, the faster your equity curve will climb.
Thus, in the spirit of this, I will share my top trading mistakes for 2012 in the hopes you can learn from them.
1) Trading and Investing are Two Different Things
I am a trader first and foremost, but I also am invested long term in physical gold.
To ‘invest’ in physical gold, you constantly have to understand what is happening in the physical AND paper market.  It helps to study central bank buying of gold, physical supply, how it is used as a safe haven against bad governments, etc.
However, I also trade gold using intraday price action strategies, and sometimes my methods/opinions on one get mixed with another.  Long term I am a bull on gold, and have been since 2004/05 back at the $400 levels.
Many times in the last 3 months, I was long paper gold.  Yet intraday price action would be screaming for me to get short.  My broker allows hedging – so why wasn’t I shorting physical?  Because my long term investing bias was interfering with my short term trading methods.
One of my top trading mistakes for 2012 was forgetting that I am a trader first and foremost, and to not let my bullish bias or investing strategies interfere with an obvious price action setup.
A good example is I bought paper gold at $1633, which I blogged about as a high probability breakout.  At one point I was up 51x my risk, meaning for the 300 pips I was risking, I was up about 15200 pips.
By the time I walked away from the trade, I was only up 6500 pips. I didn’t follow exit rules because of my long term investment bias.
Remember, a trader and investor are two different things, and you must understand the difference.
2) Trading Against Impulsive Price Action
One of the base models I use for trading is understanding impulsive and corrective price action.
To sum it up briefly, impulsive price action moves are when the institutional market is heavily buying or selling and driving the price action directionally.  With training and practice, you can learn to read the order flow behind price action, particularly by identifying these impulsive price action moves.
A few times this year I traded completely against these moves.  Case in point – meet exhibit A, ironically on……wait for it……Gold!
Gold 4hr Charts
impulsive and corrective price action gold trade 4hr chart 2ndskiestrading.com
Looking at the chart above, you will notice on the bottom left points A and B which showed strong price action rejections.  Buyers stepped in at this level, driving prices almost $50 higher in about 6 days.
At C you will notice the pin bar at C which was the second sign the bullish move was ending.  Any idea what the first was?
Regardless, after the pin bar, price action failed to make a HH (higher high) and started with selling off impulsively at D, then more sellers came in at E, and by F, once it broke the role reversal level, price got monkey-hammered dropping $30 in 4 hours.
I had a buy order at the support level at G, so made some profit on the bounce, but missed the fact the market was still showing impulsive price action selling.
So at H what did I do?  I bought some again, hoping for a similar move.  The result is below, but you get the idea.
Gold 4hr Chart Exhibit B
impulsive price action breakout pullback setup gold 2ndskiestrading.com
At the support level where my first long worked out, I went long again at H and the same level.  Shortly after I was stopped out.
Instead of realizing I was trading against the trend and impulsive price action, I was looking for a reversal. I consequently missed the obvious breakout pullback setup at the same level I was looking to get long, which then became a role reversal level.  This is what happens when you trade against the trend and your system.
Not only do you miss several good with trend setups, but after you get stopped out, you usually miss the follow up trade from your price action system to take advantage of the move.
3) Let Your Trade Run Until Your System Tells You To Exit
Barring any extreme or black swan event, I usually just let my trade run until my rule based system tells me to exit.
However on a recent buy on the GBPJPY, after getting a great entry and banking about +300 pips, I exited the trade, even though my system was still telling me to hold long and hadn’t given an exit signal.
Looking at the chart below, you can see on the top left at B a critical resistance level which started the massive 300 pip sell off.
ichimoku strategy chris capre 2ndskiesforex gbpjpy + 300 pips
Price started to show signs of exhaustion, and started a reversal.  My ichimoku strategy picked up a buy order just above 126.60.  Shortly after, price climbed rapidly gunning it for the same resistance level at 129.50.  After the weekend gap rejected, I took profit banking about +300 pips.
Not so bad you say…until you look at the chart below.
ichimoku trading strategies chris capre 2ndskiestrading.com gbpjpy
Not only did my system hold on for another + 300 pips, but it gave me a re-buy signal around 132 and is still currently long today.  I missed that one as well from being ‘upset’ about exiting early.  Needless to say this would have over tripled my profits. Even though my system never gave me an exit, I got out of the position.
Not letting runners run is one of the most costly mistakes a trader can make.  Yes, it is important to understand what is a high quality signal, but I’m guessing if you let just 10 of your trades run until the system gave you an exit, you would have made almost double your profits on those 10 trades.  For me, it was actually 2.4x more.  Food for thought.
In Closing
Part of trading is making mistakes, but a key component of your success is learning from your mistakes and making less of them over time.  Regardless of your skill level or how long you have been trading, you will make mistakes.  Anyone who only posts their successes and doesn’t admit to their failures is hiding behind a wall of fear and a false reality.
I make mistakes and I’ve been doing this for 12 years.  But I learn from them continually and make less of them as time goes on.  This translates into more profits, smaller drawdowns, less emotions, and a smoother equity curve.
Eliminating mistakes is the fastest path to making more profits.  But the first step is becoming aware of them.  This is where the trading journal comes in handy.  If you’ve made 300 trades last year, are you really going to remember every mistake you ever made?  Unlikely, this is why you have a journal, to help you become aware of your mistakes.
The second step is to actively work on eliminating and transforming them.  If you repeat a mistake over and over again, then the cause is likely psychologically, and something that can be re-wired through ERT training and developing a successful trader mindset.
But the bottom line is you can transform your mistakes into strengths, and most definitely into greater profits.  In almost all cases, making less mistakes can be the difference between a winning and losing day, month or year.  And in almost all cases – will lead to significantly greater profits.
Kind Regards,
Chris Capre

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Ichimoku Price Theory | An Introduction

This is the third installment introducing details to subjects which are not really discussed or talked about when it comes to Ichimoku Trading, that of using Ichimoku Time Theory and Ichimoku Wave Theory. Remember, according to Goichi Hosada (the creator of the Ichimoku Cloud), the Ichimoku trading system is based upon three pillars, and they are;
1) Ichimoku Time Theory
2) Ichimoku Wave Theory
3) Ichimoku Price Theory
This Ichimoku trading system article will be focused on introducing the key principles to Ichimoku Price Theory.  For those wanting a review of the other two, you can find those articles by clicking on the links above.
It should be noted to really understand and apply Ichimoku Price Theory, you will need an understanding of the prior two, particularly a good grasp of the Time Theory which is used quite extensively with the Price Theory.
The goal of this article will be to introduce the most basic components of the Price Theory, which may be considered the most complicated of the three.   I will discuss the main price calculations, how to formulate them, give examples of each one and some helpful tips when applying the Price Theory to Ichimoku trading.
Introduction To Ichimoku Price Theory
First, it should be noted we do not want to see these price targets as absolutes.  They are really guides to give us highly probable approximations as to where the market is likely headed during a particular wave or move.  These methods take practice to learn how to use, so take your time with them, but never look at this as an absolute target.
In reality, there are 4 basic price measurement methods according to the theory, however the 4th is generally regarded as a low probability event and takes a considerable amount of skill to spot and use.  So for our purposes, we will only use the basic three which are the most common and critical to learn.
The three main price measurements are known as;
1) The V Calculation = B + (B – C)
2) The N Calculation = C + (B – A)
3) The E Calculation = B + (B – A)
The formulas for them are listed above, but I will show you a diagram to better understand them which is below.
Ichimoku Price Theory Price Target 2ndskiesforex small
Although I listed the NT Calculation, for now just spend time understanding and practicing the first three price measurements.
The V Calculation
Looking at this general structure, we have a bullish move from A – B – C.  You will notice the depth of the retracement of C in relationship to the A – B move, which is about a 61.8% retracement.  If we were using Ichimoku Wave Theory, this would correlate to an N Wave.
The way to use this as a price measurement method is when price breaks the horizontal line at B for that is only when the V Calculation and pattern would be active.  Of course we can make the calculation ahead of time, and that is the point of the price measurement methods (or ichimoku price theory in general).  But the calculation actually does not become ‘active’ till the line at B is broken.
Once this does, we can expect an upside price target of D to be achieved (within a handful of pips) based on the V Calculation.  An example is below.
V Calculation Using the NZDUSD 4hr Chart
V Calculation ichimoku price theory 2ndskiestrading.com
So using this chart and running through the math of the V Calculation, we take .8202 + (.8202 – .8110 = 92), or .8202 + 92 pips = .8294.  As you can see, this matches up nicely with a current swing high and natural target for an upside continuation in the Kiwi (should it continue).  This is a basic example of how you can use the V Calculation to gauge a potential target for the pair.  An ichimoku trader using this calculation along with the swing high would only bolster their confidence in the upside target being hit.
Keep in mind this is a live chart and I have no idea how this will play out, but wanted to show it as an example.
Lets run through examples of the N and E calculations so you can see how they operate.
N Calculation = C + (B – A) Using the Dow Jones Index 4hr Chart
N Calculation ichimoku price theory 2ndskiestrading.com
Now using this chart above and the numbers for the N Calculation, C (12698) + (12794 – 12463 =  331), or 12698 + 331 = 13029.  So we would have a general target of 13029.  Now if you remember, these numbers are not meant to be absolutes, only highly probably approximations of upside or downside targets.  Considering the major role reversal level was at 13003, we can consider this to be a good target for D using the N calculation.
E Calculation = B + (B – A)  Using GBPJPY 4hr Chart
E Calculation ichimoku price theory 2ndskiestrading.com
Using this chart above on the GBPJPY and the E Calculation, B (12897) + (12897 – 12566 = 331), so 12897 + 331 = 132.28.  In this case, the market actually only got one pip higher than the D price measurement or target, showing a fine example of how the E calculation and price measurement theory can work.
Some Additional Notes
As I said before, ichimoku price theory should be combined with ichimoku time theory as they work in tandem.  But the scope of this is for another article and far too large for an introduction to ichimoku price theory.
Another note in terms of deciding which price measurement to use is based on the price action of the actual moves you want to measure.  You will notice all of the calculations have certain levels of impulsivity and correctiveness to the A, B and C moves.  On a basic level, what you are doing is gauging the level of the retracement from B – C, along with the correctiveness of the pullback from B-C to determine which calculation you will use.  Thus in essence, you need the A, B and C components to really apply any calculation at all.  But how you read these moves and waves will determine which calculation you use.
A critical note as well, is when measuring bull or bear runs.  The calculations you see in the first diagram are for bullish runs.  For bearish runs, you will substitute the + for a – between the first variable and the set. Thus, using the V Calculation, instead of it being V = B + (B-C), it would be V = B – (B – C).
In Summary
This was an introduction into Ichimoku Price Theory which is by far the most complex and intricate of the three pillars of The Ichimoku trading system.  The three basic calculations are critical and the foundation of the entire price theory, thus the most important formulas for you to learn.  Eventually you will combine price theory with time theory, but for now, just practice the basics here.  These price measurements are not to be considered absolute values, and Ichimoku was always meant to be used in combination with price action.  In fact, many aspects of ichimoku and the formulas are interpretations and patterns often found within price action, so the two are really intertwined.
For a more in depth study and training on Ichimoku Price, Time, Wave Theory, and Ichimoku Trading, make sure to visit my Advanced Ichimoku Course where we explore these methods in great depth, along with giving rule based systems to trade ichimoku both intraday and a trending/momentum basis.

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Ichimoku Wave Theory – An Introduction

Now that I have outlined the major components to Ichimoku Time Theory (ichimoku numbers), I want to talk about the 2nd pillar of Ichimok which is the Wave Theory.
Remember, the main pillars of Ichimoku are not the Tenkan, Kijun, Chikou and Kumo.  These are components of Ichimoku to help you read the main aspects of what is going on with the trend, support and resistance, and price action – all within a glance.
But…..these are NOT the pillars of Ichimoku.  This led Hosada to state the following when he realized everyone was getting stuck believing the Tenkan, Kijun, Chikou and Kumo were all Ichimoku was about;
“Of the 10,000 or so people who are practicing and trading ichimoku, only about 10 really understand it.”
The 3 main pillars of Ichimoku are;
1) Ichimoku Time Theory
2) Ichimoku Wave Theory
3) Ichimoku Price Theory
I have discussed Ichimoku time theory which is the basis for all the other pillars and all of the ichimoku components you use when you look at any ichimoku chart.  Now I would like to get into the 2nd pillar which is Ichimoku Wave Theory.  I will get into the basic components or waves only as there are several types of waves (basic, mid-term, etc.) so to give an introduction without confusing anyone, I will write about the basic waves in today’s article.
3 Basic Waves
There are 3 basic waves which are the most important ones to learn because they are the basis of the ichimoku wave theory and will always be a part of your wave counts.  They are;
1)  I Wave
2) V Wave
3) N Wave
Ironically, an I Wave is 1 leg, a V Wave is 2 legs and a N Wave is 3 legs.  Just like all the basic ichimoku numbers are building blocks for all the other numbers, it is the same with the waves.  But let me show you a picture below to help give you a needed visual.
basic ichimoku waves ichimoku cloud chris capre 2ndskiestrading.com
Looking at the image above, you can see how the one, two and three legs form the individual waves.  I, V and N waves can all be up or down so that does not matter.  Generally, I waves are impulsive price action moves, but they can be corrective.  V waves are usually one impulsive and one corrective move, but can be two impulsive moves back to back.  Whereas an N wave is usually an impulsive leg, followed by a corrective leg, and then another impulsive leg in the same direction as the original leg.
Being the most complex of the three, the N wave can have variations of this, but the first leg of the N wave should be impulsive with the other two having variations between them.  Generally, most N waves will end with a higher high for an up wave, and a lower low on a down wave.
So the wave should end up lower or higher than where it started.  If this is not the case, then it usually means a breakdown of the wave structure, but lets look at a few examples.
basic ichimoku wave examples chris capre ichimoku cloud 2ndskiestrading.com
Using the chart above, I have labeled several lines, all of which individually are I Waves.  As I said before, they all are components of each other, so a V Wave is really two I Waves put together, while an N Wave is either three I Waves, or one V Wave and one I Wave.  But lets break this down in the chart above.
Starting at the top left of the chart, the first movement from A-B is an I Wave.  Now by that token, the move from A-B-C is a downward V Wave.  A-B-C-D would be therefore an N Wave, but also composed of two V waves (one up and one down).  As a general rule, it’s better to look at the wave structure from a macro perspective then a micro one, so breaking say four N Waves up into 16 I waves is unnecessary.  Look for the larger macro structure (gestalt) of the wave structure and you got the trick.
Now, as I stated, even though A-B-C-D is an N Wave, it doesn’t end with D being higher than B.  When this happens, it generally means a range bound market at a minimum or a breakdown into a downward N wave, but rarely ever do these end up with higher prices above B, especially if C is breached.
Since this did happen, we actually have an downward N Wave starting at B-C-D-E.  We can also count a downward N Wave from D-E-F-G.  This brings me to the point that N Waves generally continue in their original direction until the ideal structure of the waves gets broken or disrupted.  It also means N Waves can continue and parts or legs (ends) of them can start new N Waves in the same direction.
So if we were counting a new N Wave from F-G-H-I, since the wave structure is being disrupted, we would expect a likely reversal, and this is supported by the upward N Wave starting at G-H-I-K.  This may seem like a lot, but this should give you some starting ideas of how to use these basic waves when reading an ichimoku cloud chart and will get easier with practice.
Usage in Trading
There are many ichimoku trading strategies we can use with these basic waves in trading, and if you were paying attention, I already gave away one idea.  One example is how the wave structure generally performs (particularly N Waves).  If the structure breaks down from its ideal formation, then watch for trend change – minimally a consolidation, but definitely not a trend continuation.
Another way this can be useful is if the number count (using ichimoku numbers) in a particular move is getting long, such as a two section, one period or a combined-6 move.  These common turning points, combined with wave structure changes often bring a confluence of signals together which can mark major turning points in a move.
For example, in the chart above, the move from D-G is actually 1 day short of a one period move (a common turning point).
Additionally, you can combine forex price action strategies with these moves, especially reversal setups, so when you see (for example) pin bar setup happening at a major resistance, along with an N Wave structural change, this can increase the probability of a reversal.
Other ways to do this is if the V Wave is not a traditional impulsive move followed by a corrective move.  For example, if it is an impulsive move followed by another one counter-direction, this could also be suggesting trend change or a range bound market, depending upon how it started the V Wave.
As you can see, there are many ways, too many to discuss here, but hopefully this gives you something to work with.
In Summary
Although there are other waves that we have not discussed, this is a good introduction and start to understanding Ichimoku Wave Theory and gives you the foundational theory to start practicing with the basic waves.  But it is important to understand this is one of the key pillars underlying all of Ichimoku Kinko Hyo theory, so understanding the basic waves is a gate towards understanding ichimoku trading strategy as a whole.
Best is to practice forex wave theory by itself so you learn it as an individual component.  Then after building some experience, combining it with ichimoku time theory.  But hopefully for now, this gives you a nice introduction to Ichimoku Wave Theory as there is very little information about it available, nor discussed openly.
For those wanting to learn how to trade the Ichimoku Cloud, time, wave and price theory, along with lifetime access to the Ichimoku traders forum, discussing ichimoku setups using rule-based systems, make sure to visit my Advanced Ichimoku Course.

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The Ichimoku Cloud

This Ichimoku forex trading video is designed to provide an introduction to the Ichimoku Cloud, a popular Japanese trending indicator with high accuracy in all global markets. The video focuses on key elements that can enhance Kumo Break trades and show you how to spot them.