In the world of cryptocurrency trading, reading and predicting market trends is not an easy task. However, there is a tool, an indicator system, that has been highly appreciated by traders for its ability to forecast and support decision-making – Ichimoku. Let’s explore this system with Crypto Trading and why it is considered an optimal tool for traders in the crypto market.
What is Ichimoku in Crypto? Basic Overview
To better understand why Ichimoku has become such an important tool in the hands of crypto traders, we first need to learn about its background.
What is the concept of Ichimoku?
Ichimoku in crypto is a technical indicator system used to identify trends, measure momentum and provide trading signals on cryptocurrency price charts. It was developed by Goichi Hosoda, a Japanese journalist. He demonstrated the effectiveness of Ichimoku in analyzing financial markets, including the crypto market.
What are the core components of Ichimoku?
The Ichimoku Cloud is a widely used technical analysis tool in the crypto market. To identify trends, support and resistance levels, as well as potential trading signals.
Ichimoku is a complex system that consists of five different lines:
- Tenkan-sen (Conversion Line): Calculated by averaging the highest and lowest prices over a 9-period period. This is a short-term indicator that helps identify short-term trends and provides quick trading signals.
- Kijun-sen (Base Line): Calculated by averaging the highest and lowest prices over a 26-period period. This line helps determine longer-term trends than Tenkan-sen and also provides important support and resistance levels.
- Senkou Span A (Line A): Calculated by averaging the Tenkan-sen and Kijun-sen, then shifted forward 26 periods. This is part of the “cloud” and helps identify future support and resistance levels.
- Senkou Span B (Leading Line B): Calculated by averaging the highest and lowest prices over 52 periods, then moving forward 26 periods. Together with Senkou Span A, Senkou Span B creates the “cloud” (Kumo), which helps determine market trends and support and resistance levels.
- Chikou Span (Lagging Line): Calculated by the current closing price, moved back 26 periods. This line helps determine the strength of the current trend and previous support and resistance levels.
What does the Ichimoku cloud tell traders?
The Ichimoku technical indicator displays information quickly through moving averages.
- Trend Identification: Ichimoku Cloud is used to identify the main trend of the market. When the cloud is green and above the price, this indicates an uptrend. Conversely, when the cloud is red and below the price, this indicates a downtrend.
- Providing Support and Resistance Levels: The Ichimoku Cloud is not just a pretty colored line on the chart, it also provides important support and resistance levels. The upper part of the cloud is called Senkou Span A. And the lower part is Senkou Span B. When Senkou Span A is above Senkou Span B, the cloud is considered a support level. Conversely, when Senkou Span A is below Senkou Span B, it becomes a resistance level.
- Trend Reversal Detection: The change in position of the Ichimoku cloud from top to bottom or from bottom to top can suggest a reversal in the market trend. When it changes from red to blue, a new uptrend may appear, and vice versa.
- Measures the market’s directional momentum – also known as Momentum. When the Tenkan-Sen crosses the Kijun-Sen from below, this usually creates a strong buy signal. It indicates that positive Momentum is increasing. Conversely, when the Tenkan-Sen crosses the Kijun-Sen from above, this usually indicates a downtrend. It indicates a decline in the market’s Momentum.
Ichimoku Cloud Calculation Formula in Crypto
It consists of five main lines, calculated as follows:
| Tenkan-sen (9 periods): = (Highest High +Lowest Low) / 2 |
| Kijun-sen (26 periods) = (Highest High +Lowest Low) / 2 |
| Senkou Span A = (Tenkan-sen + Kijun-sen) / 2 |
| Senkou Span B (52 periods) = (Highest High +Lowest Low) / 2 |
| Chikou Span (26-period backshift) = Current period’s closing price |
These indicators will create the Ichimoku Cloud. Help traders identify market trends and support and resistance levels.
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Best Indicator Settings for Cryptocurrency
In the cryptocurrency market, volatility is greater than in traditional markets. It requires adjusting the Ichimoku parameters to better suit. Here are some common parameters that crypto traders often use:
Ichimoku standard settings (26, 9, 52):
- Tenkan-sen (9 stages)
- Kijun-sen (26 stages)
- Senkou Span B (52 stages)
Ichimoku Adjustment Settings for Crypto:
- Tenkan-sen (10 stages)
- Kijun-sen (30 stages)
- Senkou Span B (60 stages)
Short-term Ichimoku setup :
- Tenkan-sen (6 stages)
- Kijun-sen (13 stages)
- Senkou Span B (26 stages)
Long-Term Ichimoku Setup :
- Tenkan-sen (20 stages)
- Kijun-sen (60 stages)
- Senkou Span B (120 stages)
Choose the right Ichimoku parameters
- Short-term trading (Scalping, Day trading) uses short-term parameters. Like (6, 13, 26) to capture small fluctuations.
- Swing trading uses standard or modified parameters such as (10, 30, 60).
- Position trading uses long-term parameters like (20, 60, 120).
Instructions on how to install and create an indicator on Tradingview
To install and create the Ichimoku indicator on TradingView, you can follow these steps:
Step 1: Go to https://www.tradingview.com/. Select “Chart” mode and choose the coin you are interested in (eg: BTCUSD on Bitstamp).
Step 2: Select “Indicators” on the toolbar and search for “ Ichimoku Cloud “.
Step 3: You will see the Ichimoku indicator system appear on the price chart.
Step 4: Use “Settings” to adjust indicator to suit your trading purposes, including changing the color, line thickness, and other parameters.
3 Best Ichimoku Trading Strategies for Beginners
Here are three trading strategies using indicator that beginners can try:
What is the Ichimoku Breakout Strategy?
The Kumo breakout strategy is a trading method that uses the Ichimoku indicator, focusing on the cloud (Kumo) on the chart. Here is how you can apply this strategy on the BTC/USDT chart:
- Above the cloud. If the price moves above the cloud, the trend is up or has momentum. This is a buy signal.
- Below the cloud. If the price falls below the cloud it is a sell signal.
- Cloud thickness. Thicker clouds indicate stronger support or resistance levels. At the same time, thinner clouds indicate weaker levels.
- Change the color of the cloud. The blue color of the cloud suggests bullish conditions. At the same time, the red color suggests bearish conditions.
Example of Kumo Ichimoku Breakout Strategy on BTC/USDT Chart
Consider this example, when applying this strategy to the BTC/USDT chart if you see a green dot. This is a strong signal of bullish price action. You can wait for the price to break above the resistance before considering opening a buy order. This will help you make sure that the trend is confirmed, instead of opening a trade based on temporary fluctuations.
Remember that applying the Ichimoku Kumo breakout strategy requires patience and market analysis skills. Always use capital protection measures such as stop-loss to manage risk in all your trades.
Tenkan-Kijun Cross Strategy
Ichimoku Tenkan-Kijun Cross Trading Strategy Ichimoku is a simple and effective method. To identify potential trends and market entry/exit points in the financial markets. It uses two moving averages, Tenkan-sen and Kijun-sen, along with Ichimoku Cloud to generate trading signals.
- Identify the location of the Ichimoku Tenkan-sen and Kijun-sen lines. The trend is up when Tenkan-sen crosses above Kijun-sen. The trend is down when Tenkan-sen crosses below Kijun-sen.
- Look at the position of the crossover relative to the Ichimoku Cloud. The bullish signal is strong when the bullish cross occurs above the cloud. The bearish signal is strong when the bearish cross occurs below the cloud.
- Evaluate the slope and distance of the diagonal. Steep diagonal angles indicate strong market volatility. Flat diagonal angles indicate weaker trends. Wide distances indicate higher market volatility.
- Confirm the trend before trading based on price movements.
- The trading signal is to buy when Tenkan-sen crosses above Kijun-sen. Sell when Tenkan-sen crosses below Kijun-sen.
Example of Tenkan-Kijun cross strategy on BTC/USDT chart
Consider the example below. The BTC/USDT chart shows a buy signal when the Tenkan-sen line (blue) crosses above the Kijun-sen line (red) above the Ichimoku Cloud. This is a signal of a potential uptrend, creating a potential buying opportunity.
Advanced Ichimoku Lag Period Confirmation Strategy
The Lagging Span Confirmation Strategy is an advanced Ichimoku trading method that uses Chikou Span, also known as the Backward Period. To confirm trends and predict potential reversal points. Chikou Span is unique in that it shows the current price but shifted 26 periods into the past. It creates a perspective comparing the current price to past prices.
Here are the key factors to consider when using Chikou Span:
- Position relative to price: The above price indicates bullish sentiment. The below price indicates the bearish sentiment.
- Interacting with the Ichimoku cloud: Entering the cloud is a signal that can be resistance (bullish sentiment) or support (bearish sentiment). Exiting the cloud can confirm the trend continuation.
- Interaction with other Ichimoku lines: Crossing Tenkan-sen or Kijun-sen lines provides further trend confirmation.
- Identify previous support/resistance areas of Chikou Span.
- The slope of Chikou Span: An upward slope indicates bullish momentum. The downward slope indicates bearish momentum.
- Signal Confirmation: Buy when Chikou Span is above price and cloud. Sell when Chikou Span.
What is the difference between Ichimoku and Moving Average?
Both Ichimoku and MA are valuable tools for traders, but each has its own pros and cons. Let’s explore them in detail below.
| Ichimoku | Moving Average | |
| Nature | It is a more complex indicator, consisting of many components such as Kumo (cloud), Senkou Span A and B, Tenkan-Sen, and Kijun-Sen. It creates a dense chart system with information about trends, support, and resistance. | Usually just the average of the closing prices over a given period of time. There are different types such as Simple Moving Average (SMA) and Exponential Moving Average (EMA). |
| Calculate | Moving Average Price | Fixed average price |
| Application | Suitable for identifying long-term trends and generating trading signals based on complex interactions between its components. | Often used to determine trends and market entry/exit points over shorter time periods. |
| Delay | There is usually more latency due to the use of more data. This can slow down trend recognition or trading signals. | Has less latency and can give signals earlier in the price move. |
| Reliability | Can provide stronger signals when all its components confirm a certain trend. | Can give earlier signals but is sometimes uncertain, especially when the market is volatile or unstable. |
How to trade a combination of Ichimoku and EMA moving average
To trade the combination of Ichimoku and EMA moving average in crypto, you can apply some of the following strategies:
- Use EMAs with different accelerations (e.g. 50 and 200 days) to determine the overall trend of the market. When the shorter EMA crosses above the longer EMA, it can be a sign of an uptrend, and vice versa.
- Use elements like Kumo (cloud), Tenkan-sen (fast-moving line), and Kijun-sen (slow-moving line) to determine buy and sell points. For example, when the price cuts through the Kumo from bottom to top, it could be a buy signal.
- When a buy or sell signal is generated by one of the two tools, you can confirm it with a signal from the other tool. For example, if the EMA generates a buy signal and the price also crosses up through the Kumo, this could be a strong buy signal.
- Always set a stop-loss to protect your investment capital. And don’t forget to set a specific profit target to lock in profits. Use a reasonable risk/reward ratio to ensure a positive risk/reward ratio.
Remember that no trading strategy is perfect and it is always advisable to test and adjust your strategy according to the market situation and your trading style.
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Some things to note when combining the Ichimoku indicator and the Moving Average
Combining Ichimoku and Moving Average can be an effective way to improve your trading ability. However, there are some important points to keep in mind:
- Ichimoku and MA can be combined to provide an overall view of trends and trading signals. For example, you can use MA to identify the overall trend and it to identify specific entry and exit points.
- When combining these tools, it is important to maintain consistency in their application and manage risk through the use of stop-loss and take-profit orders.
- To use them effectively, you need to understand the properties and how both Ichimoku and MA work. This helps you apply them flexibly and intelligently in your trading strategies.
- Do not rely solely on signals from Ichimoku and EMA to make trading decisions. Combine with other technical indicators to confirm signals and increase reliability.
- When combining Ichimoku and MA, you can use it to identify the main trend and specific entry/exit points. While MA can help identify crossovers or trend tops and bottoms.
Conclude
Above are the Ichimoku strategies that traders often apply. Hopefully, through this article, you have an overview of the basic components of a complete Ichimoku system. Initially recognize market trends through this tool. Visit Crypto Trading now to get more new knowledge that will help you start trading crypto as well as investing profitably in cryptocurrencies.
Frequently Asked Questions
How does Ichimoku work?
By tracking the position and interaction of Ichimoku curves and zones. Traders can identify current trends, potential reversals, and potential market entry/exit points.
What are the disadvantages of Ichimoku?
Can generate multiple signals, causing confusion for new traders. Ichimoku signals may lag behind actual price movements. Need to be combined with other technical indicators to confirm signals.
How to use Ichimoku to determine market trends?
Buy/sell points are determined when the price crosses the Kijun-sen and Tenkan-sen lines. Also used together with the separation of Senkou Span A and B to determine.
