Can Ichimoku Cloud be used for trading cryptocurrencies? Yes. Ichimoku Cloud Trading can identify support and resistance, determine trend direction and generate trading signals for Bitcoin and Altcoin Trading.
IchiMoku Tutorial: Terms to Understand
Base Line – (26 Period high + 26 period low)/2 – similar in concept to a longer term moving average.
Conversion Line – (9 period high + 9 period low)/2 – similar to a short term moving average.
Leading Span A – (Base Line + Conversion Line)/2 – this forms the faster cloud boundary – colored green.
Leading Span B – (52-period high + 52 period low)/2 – this forms the slower cloud boundary – colored red.
Ichimoku Trading Strategy For Cryptocurrencies
Bitcoiners using the ichimoku cloud in their cryptocurrency trading look to the ‘cloud’ to identify the overall trend and establish a trading bias. Trend-following signals focus on the Cloud itself. Commonly, trading bias is bullish (prices are expected to go up) when prices are above the lowest line of the cloud, and bearish (prices are expected to go down) when price is below the highest line of the cloud.
Ichimoku Buy Signal Within An Uptrend
Price is above the lowest line of the Cloud – providing a bullish bias. When price of the altcoin moves below the Base Line, this is referred to as ‘a pullback’, and the trade setup is cocked and getting ready to fire. Finally, the buy signal fires when prices reverse and move above the Conversion Line.
Ichimoku Sell Signal Within A Downtrend
When learning how to read ichimoku cloud, we start by identifying a bearish bias when price is below the highest line of the cloud. As the altcoin price moves above the base line, we have a bear pullback within the larger down trend. The sell signal fires when prices reverse and move below the Conversion Line.
What are the best ichimoku signals?
Ichimoku can be combined with chart patterns like the 1-2-3 reversal pattern, bull and bear flags, or head and shoulders tops and bottoms.
When used in combination with popular indicators like RSI and MACD, Ichimoku Cloud can provide the better entry signals – but the best signals also include volume to confirm the entry, especially buy signals. A buy signal with strong trade volume shows market interest. It is more powerful than a buy signal on low volume and has better chances of a sustained price advance.
How are Tenkan-sen, Conversion Line, Kijun-sen and Base Line related?
This indicator was invented and published in 1969 by Goichi Hasoda, who is Japanese. The Ichimoku Cloud is more accurately called ‘Ichimoku Kinko Hyo’ which translates into “one look equilibrium chart”. Tenkan-sen is the Japanese term for Conversion Line, and Kijun-sen is Japanese for Base Line.
The trend-following signals focus on the Cloud, while the momentum signals focus on the Base Line and Conversion Line cross overs. Price movements above or below the Base Line can be used to generate signals.
Can you explain Senkou Span A and Senkou Span B?
Senkou Span A and Senkou Span B, know as Leading Span B (Red Cloud Boundary), and Leading Span A (Green Cloud Boundary) in English. The green Cloud boundary moves faster than the red Cloud boundary. They are used to establish an idea about the prevailing price trend.
The trend is up (bullish) when prices are above the cloud, and the trend is down (bearish) when prices are below the cloud. A GREEN CLOUD is produced on the chart when Leading Span A (the green line) is rising and is above Leading Span B (the red line) – and strengthens the prediction of a rising trend.
The opposite is true when a RED CLOUD is produced – we find the Leading Span A (the green line) is dropping and is below the Leading Span B (the red line) – and this condition strengthens the prediction of a down trend.
Detecting Trend Changes With The Ichimoku Indicator
When the Cloud turns from green to red and the chart pattern is demonstrating a 1-2-3 top formation or head and shoulders top – trend may be changing from a uptrend to an downtrend. For confirmation, also watch for prices to move below the cloud, prices to move below the Base Line and the Conversion Line to drop below the Base Line.
Alternately, when the Cloud changes from red to green, prices move above the cloud, price moves above the Base Line and the Conversion line makes a positive cross over the Base Line – we are very likely to see 1-2-3 bottom formation confirming at the same time and we can anticipate the downtrend has ended and may be starting an uptrend.
When Do I Close An Ichimoku Trade?
A starting approach as the trade is opened is to use the low just before a buy signal for an initial stop-loss after a buy signal is taken.
The high just before a sell signal would be logical for an initial stop-loss after taking action on a sell signal. Once the trade is profitable, consider a trailing stop to lock in profits.
Exit signals can also be based on indicators, such as an RSI divergence at a double top or double bottom, or exit stop losses can be set at key support and resistance levels on the price chart.