The Ichimoku Kinko Hyo and Chande Momentum Oscillator strategy is a trend following system that looks to capture the small variations in price, but always trading in the direction of the predominant trend. On the one hand, the Ichimoku Kinko Hyo is a trend following indicator based on pure price action so gives it a higher rate of accuracy. And on the other hand the Chande momentum oscillator as its name suggest is a momentum oscillator. Combining both these strategy make this a long name… so we are going to shorten it and occasionally might reference this strategy as the Ichimoku Chande Strategy.
You can have as many indicators as you like on your screen, but unless you understand the basis of price movement, those indicators will continue to give you a false sense of security at the wrong time. In this regard, the direction and length of the trend need to be considered for higher probability outcomes.
Ichimoku Kinko Hyu and Chande Momentum Oscillator Strategy
High probability trades occur when we trade in the direction of the trend, for which we use the Ichimoku Kinko Hyo indicator, and when we wait for momentum exhaustion like overbought/oversold conditions, for which we use the Chande momentum oscillator.
Ichimoku Kinko Hyo Indicator Settings
For this strategy, we’re only going to use the Kijun Sen line to determine the trend direction and time the market. The Kijun Sen is designed to determine the short-term trends and is the highest and lowest price over the past 26 periods divided by 2. Usually, if we’re trading above the Kijun Sen line, we’re in a bullish trend and conversely, if we’re trading below the Kijun Sen line we’re in a bearish trend. The preferred settings for the Kijun Sen line are the default settings. The default setting of the Kijun Sen line is 2 periods which is ideal for spotting short-term trends.
Chande Momentum Oscillator Settings
The Chande momentum oscillator was designed by calculating the difference between the sum of all recent gains and the sum of all recent losses, then divided the result by the sum of all price movement over a specified period of time. The Chande momentum oscillator like any other momentum indicator is designed to measure the rate of change in closing prices for currency pairs and it’s often used to spot overbought/oversold conditions and turning points in the market.
Chande Momentum Oscillator Settings
The preferred settings for the Chande momentum oscillator are the default settings. The default setting of the Chande momentum oscillator is 9 periods which is ideal for trading short-term overbought/oversold conditions.
Ichimoku Chande Strategy Rules
The preferred currency pair to implement this strategy is the AUDUSD while the preferred time frame is the 1h time frame. If the price is trading above the Kijun Sen line, we’re only looking to BUY once the Chande momentum oscillator hits a reading above the 20 level. If the price is trading below the Kijun Sen line, we’re only looking to SELL once the Chande momentum oscillator hits a reading below the -20 level. We use a fixed take profit order of 20 pips and our protective stop loss is placed at 3 days low/high.
Trading with the Ichimoku Chande Strategy
In Figure 1 we have the 1h AUDUSD chart and a short trading opportunity is highlighted. We can note the high degree of predictability in these short trade opportunities. Once the market starts trading below the Kijun Sen line defining a bearish trend, every time the Chande momentum oscillator got extreme and our short trade order got triggered the market never looked back. The premise behind the Ichimoku Kinko Hyo and Chande momentum oscillator strategy is that once a trend is put in motion the probabilities are in favor of that to continue until it reverses.
Entering into Short Positions with the Ichimoku Chande Strategy
In Figure 2 we have the 1h AUDUSD chart and a long trading opportunity is highlighted. The strength of the Ichimoku Kinko Hyo and Chande momentum oscillator strategy is that once a trend has developed it will try to keep you on the right side of the market for as long as possible. In Figure 2 we can note that once the price dropped below the Kijun Sen line no trade was triggered because not all of the requirements to enter a trade are fulfilled.
Trading Long Positions with the Ichimoku Chande Strategy
Another practical way to use the Chande Momentum Oscillator is to use it as a Momentum indicator and trade breakouts. For example, if you’re in a downtrend you should be selling if the Chande momentum oscillator posts a reading below -20 and we are trading below the Kijun Sen line. Conversely, you should be buying if the Chande momentum oscillator posts a reading above 20 and we are trading above the Kijun Sen line.
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