Until price breaks out of this extremely bullish accumulation phase, we can spend some time looking at the market from a different perspective. And that perspective today is Ichimoku.
The Ichimoku system is both an indicator and a trading system all in one. Its full name is Ichimoku Kink Hyo. The name is Japanese it means, ‘at a glance’ or ‘one look equilibrium’. Essentially, it’s a look at the market and how it is doing at a glance. It’s actually a fascinating tool and it is a system that I used to first become profitable. Ichimoku shows a number of trading tools all at once and it provides a kind of suite of tools. It’s actually pretty fascinating and useful. There are a great number of successful and professional traders who use this exact system. Let’s take a look at it.
It looks pretty confusing. But it’s actually quite simple once it’s explained. We really have 4 components in this entires system we need to look at.
1. Tenkan-Sen (Conversion Line) it’s a 9-period moving average, the faster-moving average.
2. Kijun-Sen (Base Line) 26-period moving average, the slower moving average.
3. Chikou Span (Lagging Span), this is the close of the candlestick but it’s shifted back 26 periods.
4. Kump (The Cloud) this is the area between the Tenkan-Sen (Conversion Line) and Kijun-Sen (Base Line) and it is colored in to show a ‘cloud’. The current space between those two moving averages is then moved forward 26 periods.
Now, the principles of this system are very easy:
- Price is trending up when price trades above the cloud.
- Price is trending down then price trades below the cloud.
- When price is inside the cloud, it is in a squeeze/consolidation.
We can also look at a number of signals for bullish/buy entries:
- If price moves out of the cloud.
- Price moves above the Kijun-Sen (Base Line)
- Tenkan-Sen (Conversion Line) moves above the Kijun-Sen (Base Lines).
One of the things about Ichimoku that rarely gets mentioned is probably the most powerful indicator of a true bullish trend change is this: The Chikou Span (Lagging Line) crossing above the cloud. When you see this happen, that is a very strong confirmation of a change in trend. Also, we only want to take longs/buys when price is above the cloud. If price is inside the cloud, no trades.
What is Bitcoin doing using Ichimoku?
This is a 4-hour chart of Bitcoin. What we have here is a very bullish buy entry based on a number of factors. First, we see that price is trading above the cloud. Second, we see that both the Conversion Line (faster-moving average, blue line) and the Base Line (slower moving average, red line) are above the cloud. Third, we see that the Conversion Line is above the Base Line. To me, this is a buying opportunity. However, a more conservative approach and a more conservative entry is waiting until the Lagging Line (green line) crosses above the cloud. Either way, we have not traded above the cloud on a 4-hour chart for over 34 trading days. We should expect some pullback to the Conversion Line, Base Line or the Cloud. A pullback to those is a great entry for another long position.