Introduction to the Alternative Ichimoku Indicator
Seasoned traders would often trade with the direction of the long-term trend in mind. This is because trading in the direction of the long-term trend often gives a higher win probability.
There are several long-term trend indicators that are popular among traders. The Alternative Ichimoku indicator is a modification of the popular Ichimoku Kinko Hyo system, which has a robust long-term trend indication in its system.
What is the Alternative Ichimoku Indicator?
The Alternative Ichimoku Indicator is a custom technical indicator which is based on the Ichimoku Kinko Hyo system. It is a long-term trend following indicator which plots three lines. It plots a blue middle line. It also plots a pair of outer lines which is composed a fast moving pink line, and a slow moving blue line. It also shades the area between the two outer lines, which changes color depending on the direction of the trend. It plots a pink line to indicate a bullish trend, and a blue line to indicate a bearish trend.
How the Alternative Ichimoku Indicator Works?
The Alternative Ichimoku indicator is based on the concept of the “Kumo” or “cloud” of the Ichimoku Kinky Hyo system. It is a long-term trend indication which uses two lines. This indicator also uses an algorithm within its script which is somewhat similar, but with a few tweaks, which allows traders to adjust its sensitivity.
Its shade changes color depending on how the two outer lines interact. It plots a pink shade whenever the pink line is above the blue line, indicating an uptrend. Inversely, it plots a blue shade whenever the blue line is above the pink line, indicating a downtrend.
How to use the Alternative Ichimoku Indicator for MT4
The Alternative Ichimoku indicator has only two variables which can be modified within its settings. These are the “SSP” and “SSK”. Higher values used on these inputs would cause the indicator to be smoother, yet less responsive. On the other hand, lower values would cause the indicator to be more responsive, yet less reliable.
The Alternative Ichimoku indicator is mainly a long-term trend indicator. As such, it is best used as a trend direction filter, wherein trades are taken exclusively in the trend direction indicated by the Alternative Ichimoku indicator.
Buy Trade Setup
When to Enter?
Identify an uptrend market based on a pink Alternative Ichimoku. Wait for price to retrace near the Alternative Ichimoku. Open a buy order as soon as price shows signs of price rejection on the area near the Alternative Ichimoku. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a probable bearish reversal.
Sell Trade Setup
When to Enter?
Identify a downtrend market based on a blue Alternative Ichimoku. Wait for price to retrace near the Alternative Ichimoku. Open a sell order as soon as price shows signs of price rejection on the area near the Alternative Ichimoku. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a probable bullish reversal.
Conclusion
The Alternative Ichimoku is an excellent long-term trend direction filter indicator. However, it does not provide trade entry signals. It is important for traders to learn to read price action when trading using this indicator as price action would be the basis for opening and closing trades.
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