Ichimoku Kinko Hyo: Stop Loss

This is a question that comes up quite often and to answer in one post would be far to much. So with that said I will be talking about this subject in length over the next week so that there is a firm understanding of “Stop Loss” as it pertains to Ichimoku Kinko Hyo.

There are several different ways to determine Stop Loss thresholds using Ichimoku Kinko Hyo and the first and most obvious one that I will talk about is a Kijun Sen SL – or configuring the SL according to the position of The Kijun Sen. This method works “best” if you are using the Kijun Sen and price as indicators. If you have questions concerning this practice please email me and I will help you, if I have not already completed a post concerning it.

To understand this configuration you must understand some of the basic rules within Ichimoku Kinko Hyo.. This is one.

Rule: When price traverses the Kijun Sen, the direction in which it traverses gives an indication of price direction.
Example: If prices traverses the Kijun Sen from the bottom up sentiment is with the “Bulls” and this is a good time to “Buy” if price traverses the Kijun Sen from the top down, then sentiment is with the “Bears” and this is a good time to sell.

With this rule in effect It is a good idea to place the SL at least 10 pips below or above the prevailing Kijun Sen one time frame in the future…

For instance if you are trading on a 2H time frame, and you are going “long” place your stop loss at least 10 pips “below” the Kijun Sen on the 1H chart. This can be adjusted based on your risk tolerance and money management rules. You may wish to use the Kijun Sen on the 30M chart which would give you a “tighter” stop loss.

Why is this true?

If price traverses the Kijun Sen price may continue in that direction for further positioning.. So with that said.. If you are trading the 1H chart and price is above the Kijun Sen, it is a strong possibility that when price crosses the Kijun Sen headed “south” price may stay under the Kijun Sen for some time increasing your losses..

This method of SL placement should also alert you to one of the most effective Ichimoku indicators, I call it a “Kijun Sen Cross” .. Other Traders call it other things but in an essence “Kijun Sen Cross” tells the story…

Hint: When the Kijun Sen crosses or traverses price.. place your position in the direction of the cross. From the bottom up.. “buy”… From the top down, “sell”, and hold your position until price crosses again OR you reach a designated TP point.

I will talk about this more as we progress through the week.. the next one I will explain is a Senkou Span SL Configuration.