Insight into the nature of the Kumo

Three standard entries and several opportunities for insight into the nature of the Kumo.

At the LHS is a standard Kumo break that defines the beginning of a trend. I’ve marked levels on the way up that are likely to be significant should price reverse relatively soon after the climb. Notice how the Kumo reflects those levels in the form of flat spots. Personally I don’t look very far to the left, I watch the Kumo and the price action and that’s enough. It’s a matter of style. In fact, as long as your aggregation fits with your trading method you don’t need to consider multiple time frames. There are traders that do, but it’s not necessary – it’s a matter of style – and to me it’s a distraction. Being in touch with price action on your trade frame is what counts and you need to keep it simple or you won’t be able to see entries until they’ve passed. It’s also considerably easier to follow and trade several symbols which is a big advantage.

Notice also how price makes a pretty significant move as it goes back through the Kumo. Technically there is a Kumo break at the RHS, but I would not get short there because price has made a significant move in order to break. The LHS breakout follows consolidation, that’s what you look for in a breakout. Another way to see that the RHS is not a good break entry would be to include the Kijun. You would see that it’s considerably above price, indicating that price is likely too far from equilibrium to make a significant move without some consolidation. Notice also that consolidation is occurring pretty much at the 50% retracement of the trend move. There are Kumo parameters that would have tagged it exactly but the point is to use a setup that works reasonably well for the symbol you’re trading and focus on what price is telling you.

Another observation for this Kumo is that price reversed just in time to beat the flat top already drawn at the right (picture is where Kumo ends for third entry arrow). There is a significant timing aspect built into the price action that the Kumo captures and price is less likely to break through if it doesn’t fall before that flat top. That’s a consideration for the third entry. The context of my chart has to be perfect or I won’t take a reversal entry and if it looked like price was going to meander and not drop quickly enough I would have considered the flat top to be support and the trade would not have had enough room.