How I'm setting stop losses on USDJPY using Ichimoku

ichimokucorner Updated   
FX:USDJPY   U.S. Dollar / Japanese Yen
In my recent post I indicated that I am long USDJPY due to the higher timeframe bullish trend:

A question that traders often ask is "how do I set a stop-loss when the market is moving up?". This applies if you are looking to enter your first trade in the trend, or if you want to trail a stop-loss on an existing order. The answer is simple when you use Ichimoku.

Briefly, Ichimoku lines indicate the "market equilibrium" over various timeframes. There are three equilibrium lines (or "Han-ne" lines in Japanese). These are:

1. Tenkan-Sen - 9 periods / Short-term equilibrium (yellow on my chart)
2. Kijun-Sen - 26 periods / Medium-term equilibrium (red on my chart)
3. Senko Span B - 52 periods / Long-term equilibrium (red kumo cloud line on my chart)

A Han-ne line is created by finding the midpoint of the highest high and lowest low within the set number of periods. If price is above a Han-ne line, it is said to be bullish in that timeframe, and the opposite for bearish. There is a lot more to learn about Han-ne lines and the meaning of the equilibrium, but for our purposes here, understand that these lines tell you the point where buyers and sellers meet.

One of the reasons we know that USDJPY is bullish is because the Han-ne lines are angled up on the higher timeframes (4H and 1D). This means that the point at which buyers and sellers meet is increasing. In other words: we are trending up!

Now: the secret for setting your stop-loss. If the Han-ne line tells us where the equilibrium is over the short/medium/long term, periods where the line remains flat are significant. If a Han-ne line, especially Kijun-Sen or Senko Span B, remains flat for multiple periods, it means that midprice has been established by many buyers and sellers.

We can use these flat Han-ne lines as:
1. Support/resistance
2. Zones to place stop-loss orders

As I look at a pair like USDJPY trending up, I am zooming into the lower timeframes (think: 15m or 30m) and looking for flat Han-ne lines. If I see several "zones" forming I can place my stop-loss just near the other side of that zone. This means I can receive adequate protection, but also know that if the price does clear that zone and hit my order, a reversal or pullback is likely happening and it will be a good time to exit anyway.

We've already seen a flat Kijun-Sen line act as support on the 15m chart:

You can use this concept for any pair, currency, stock, crypto, etc. The secret is to look for flat lines and use these as your support/resistance levels and stop-loss zones.

Happy trading!
Flat Han-ne lines can also indicate a retracement/pullback or pause in a trend. When multiple Han-ne lines go flat, it means that the market isn't making new highs or lows in the short, medium, or long term. If we were to draw a donchian channel of the price, it would be bouncing around inside it, without it moving. This is what we mean by a "ranging" market.

Currently, USDJPY Han-ne lines have gone flat on the 30m chart. This increases the likelihood that price will retrace down, possibly bouncing off one of the lines. We need to be cautious in cases like these. I wouldn't enter a long position until the lines angle up again.

For stop-loss management, you can use these flat Han-ne lines to revise your stop-loss. I usually only use Kijun-Sen or Senko Span B as dynamic support/resistance, as Tenkan-Sen isn't as reliable.


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