Ichimoku Clouds is one of the indicators used by Crypto investors to assess current and future market trends. So what exactly is Ichimoku? How to use it? The following article by Crypto Trading will provide you with the necessary information.
Things to know about Ichimoku clouds
Before learning how to use Ichimoku clouds in coin investment, you need to understand the concept what is Ichimoku, its meaning, and its components.
What are Ichimoku clouds? Meaning
Ichimoku clouds are also known by many other names such as Ichimoku Kinko Hyo, Ichimoku, or Ichimoku Indicator. This is a type of technical indicator used in financial investment in general and Crypto investment in particular. Because this indicator is called Ichimoku clouds because it has a shape like a cloud.
Clouds are formed from moving averages MA.
Based on its analysis, investors can predict the price trend of the market, resistance and support levels as well as the time to enter/exit orders.
The lines that make up Ichimoku clouds
Ichimoku clouds is made up of 5 basic lines. Including the Kijun-Sen line, Tenkan-Sen line, Senkou-Span A line, Senkou-Span B line and Chikou-Span line.
See more: Ichimoku: Optimal trend indicator system for traders
Kijun-Sen Road
The Kijun-Sen line of the Ichimoku indicator is also known in Vietnamese as the baseline line. This is the most important line of the Ichimoku clouds. The Kijun-Sen line is calculated based on the trading data of the 26 most recent consecutive sessions.
The Kijun-Sen line is calculated based on the following formula:
Kijun-Sen Line = (Highest Trading Price + Lowest Trading Price)/2
The Kijun-Sen line is usually horizontal. Market prices will always follow this line. Based on this, investors can assess the price trend of the market. The prediction is as follows:
– When the price is above the Kijun-Sen line, the price is in an uptrend.
– When the price is below the Kijun-Sen line, the price is in a downtrend.
– The steeper the Kijun-Sen line, the greater the market price fluctuations.
– When the Kijun-Sen line is horizontal, it shows that the market does not have a clear upward or downward trend. Investors should wait until a clear trend is identified or combine many other indicators for analysis.
Tenkan-Sen Line
The tenkan-Sen line is also known in Vietnamese as the signal line. This line is calculated based on the trading history of the last 9 sessions. Tenkan-Sen line is calculated based on the formula:
Tenkan-Sen = (Highest trading price in 9 sessions + Lowest trading price in 9 sessions)/2
Because the line is calculated in a shorter time, it also reacts faster to market fluctuations. From there, investors also determine the market trend more accurately to place orders. Normally, investors will use a combination of both Kijun-Sen and Tenkan-Sen lines to predict the market. When the Kijun-Sen line cuts the Tenkan-Sen line from bottom to top, investors should buy. Conversely, when the Kijun-Sen line cuts the Tenkan-Sen line from top to bottom, investors should sell.
Senkou-Span A Line
Senkou Span A is also known as Leading Span A or Senkou Span A, leading span A. This is the average of Kijun-Sen and Tenkan-Sen over the last 26 trading sessions.
The Senkou Span A line is calculated using the following formula:
Senkou Span A = (Kijun-Sen + Tenkan-Sen)/2
The Senkou Span A line is one of the edges of the Kumo cloud. This line is used to identify resistance and support zones.
Senkou-Span B Line
Senkou-Span B Line is also known as the B-Line. This line is formed by averaging the highest and lowest prices over the last 26 trading sessions.
The Senkou Span B line also forms another edge of the Kumo cloud. Similar to the Senkou Span A line, this line is used to identify support and resistance zones.
The Senkou Span B line is calculated using the formula:
Senkou Span B = (Highest trading price in the last 26 sessions + Lowest trading price in the last 26 sessions)/2
The Senkou Span A and Senkou Span B lines of the (Ichimoku cloud) are also components of the Kumo cloud. In the case where the Senkou Span A line is above the Senkou Span B line, the Kumo cloud has the characteristics of the Senkou Span A line and vice versa.
Chikou-Span Road
The last line in the Ichimoku Clouds is the Chikou-Span line. This line is determined by the current market closing price but regressed 26 sessions ago. By comparing the Chikou-Span line and the price line, investors can determine the market trend. Specifically as follows:
– When the Chikou-Span line is above the price line, the market price tends to increase in the future.
– If the Chikou-Span line is below the price line, the market price tends to fall.
– If the Chikou-Span line closely follows the price line, the market shows no signs of increasing or decreasing.
– Compare the distance between the Chikou-Span line and the price line, the further they are, the stronger the price trend.
Some advantages and limitations of Ichimoku clouds
With every Crypto indicator, they have certain advantages and limitations. Ichimoku Clouds is no exception.
Advantages of advanced Ichimoku clouds
Calculating the Ichimoku indicator offers outstanding advantages such as:
– Clouds provide investors with a lot of important information such as market price trends, order entry times, support and resistance zones…
– The ichimoku indicator is highly reliable so it is used by many investors.
– Not only applied to analyze cryptocurrencies, Ichimoku is also used in many other fields such as stocks, forex…
Some limitations of the advanced Ichimoku clouds
Besides the advantages, Ichimoku also has some limitations such as:
– The cloud is made up of many lines, making it difficult for investors to analyze, especially for beginners. Therefore, to be able to read and analyze this cloud, investors need to have a lot of knowledge and experience.
– The analysis data is based on past history and may not fully reflect the current market situation.
– Ichimoku indicator has a delay. That is why it predicts trading time later than other financial indicators.
How to apply indicator Ichimoku clouds effectively
There are 4 basic ways to use Ichimoku clouds effectively. Specifically as follows:
Trade with Ichimoku clouds in depth when the Tenkan-Sen line crosses the Kijun-Sen line
When you see the Tenkan-Sen line cross the Kijun-Sen line from bottom to top, the crossing point is below the Kumo cloud. This is the signal for investors to place a sell order.
Conversely, when the Tenkan-Sen line intersects the Kijun-Sen line from above, the intersection point is above the Kumo cloud, this is a signal for investors to place a buy order.
Trade with Ichimoku clouds when the Chikou-Span line crosses the price line
As soon as the Chikou-Span line cuts the price line from above, the Chikou-Span line moves away from the price line. Investors should place a sell order. Conversely, when the Chikou-Span line cuts the price line from below, the Chikou-Span line moves away from the price line, this is a buy signal.
Entry point, stop loss point, and take profit point are determined as follows:
For the entry point, you determine by the signal candle near the intersection area. If you want to place a buy order, you look for a green candle. In case you want to place a sell order, it is a red candle.
The stop loss is located below the crossover zone, near the support zone in case you are looking for a buy order. Conversely, if you are looking for a sell order, it is located above the crossover zone, near the resistance zone.
For the take-profit point, based on each investor’s expectations and calculating the R:R ratio, set it appropriately.
Trade with Ichimoku clouds increases when the Senkou-Span A line crosses the Senkou-Span B line
When you see the Senkou-Span A and Senkou-Span B lines intersecting from below, the Kumo cloud changes from red to blue. This shows that the market is in an uptrend, and investors should buy.
Conversely, when the Senkou-Span A and Senkou-Span B lines intersect from top to bottom, the Kumo cloud changes from green to red, the market signals a downtrend. Investors should sell.
See more: OKX: open an OKX account – Reputable crypto exchange
Ichimoku trading when price breaks out of Kumo cloud
For this trading method, as soon as you see the market price break out of the Kumo cloud, you immediately place an order. You place a buy order if you see that the market is showing signs of slowing down. The price breaks out of the Kumo cloud from bottom to top. The closing price is above the Kumo cloud.
Conversely, you place a buy order when you see that the market is in an uptrend and then starts to show signs of weakening. The price breaks the Kumo cloud from top to bottom. The closing price is below the Kumo cloud.
The entry point is determined right at the tree if the signal is after the price breakout.
The stop loss for buy orders is below the intersection of Senkou-Span A and Senkou-Span B. For sell orders, the entry point is above the intersection of Senkou-Span A and Senkou-Span B. The take profit point depends on the expectations of each investor.
Conclude
Thus, the above article has summarized and provided you with all the necessary information about Ichimoku clouds. Please refer carefully to analyze and come up with a reasonable investment strategy for yourself. If you need any other reference information, you can visit Crypto Trading for updates.
FAQs
Does the indicator Ichimoku clouds show up directly on the coin chart?
On the chart, there is an indicator of Ichimoku clouds. Investors open it by selecting “Indicator” on the toolbar and searching for “ Ichimoku Cloud” to view and analyze.
Ichimoku clouds used alone or in combination with other indicators?
Ichimoku is used completely independently without depending on any other indicators.
Can the analysis of Ichimoku clouds be wrong?
The analysis of Ichimoku clouds can still be wrong if the investor lacks knowledge, experience, and incorrectly identifies the market trend.
