My thumb-rules for using the Ichimoku Cloud.

I’ve been dabbling with the Ichimoku cloud for a fair while now, and I wanted to share my views on different coins/ tokens with you from to time to time as I research them for myself. This way I can approach my research in a more disciplined way and you have the benefit of (yet another) view of the crypto market. Unlike other reviews which tell you to either buy or sell, I'll be telling you what the crowd is thinking. Is the crowd bullish, bearish or plain old confused.

Ultimately, I find that the markets do not follow any discernible logic when pushing up or pulling down any currency, stock, commodity, etc. Prices are often not tied to any tangible facts or technicals, as I'd started out thinking. Price of anything is most often than not, heavily influenced by different kinds of news and opinions, both genuine, in-genuine, speculative or some mix of all., which in it's turn, churns our insatiable appetite for hype. Price is a function of the collective groups' sentiment.

Hype is our form of actionable information, our call to action. It's the most dangerous, volatile driver of the market. Unfortunately, most of us are responsible for it. Markets since the very beginning appear to have been driven by hype. The Mississippi Bubble of 1720 and the South Sea Bubble which lead to the Bubble Act of 1720 are good starting points to understand hype. Hype is inescapable in any market, so, instead of fighting it, I intend to use the Ichimoku to understand the hype and use it's gravity for my advantage.

That being said, I believe in always doing my own research and once I am convinced that a coin/token is worth holding -long or short term, I wait for a go-ahead from the Ichimoku before entering any transaction. This method is a conservative one. It requires us to under two things essentially, the hype and the news.

So, what constitutes the Ichimoku Cloud?

The Ichimoku Cloud, has four components that you will come across:

(i) Tenkan-Sen (the red line);
(ii) Kijun-Sen (the blue line) ;
(iii) Chikou Span (dark blue line) and ;
(iv) the Kumo (the cloud, that can be red or green, depending on the mood of the crowd. This cloud is made of two lines – Senkou Span A and Senkou B. I’m not going into these lines, we’ll look at the cloud as a whole).

I will not go into the technicalities of how the various lines are derived and the calculation that go into them ( if you want to know more, go here ), but as a way of understanding the system intuitively, remember the following thumb rules:-

I. A good positive trend has : the price above the blue line, which is above the red line, which is above the cloud. The dark blue line, C, should also be above every thing as well. This is the BTC positive trend on a macro scale (3D candles), still very much intact :

https://www.tradingview.com/x/hrdgrtU6/

Point 'A' in this chart is when the price breaks out of the cloud, sometime around February, 2016. The price at this point of time was about $430. The first signal we get of a turn in crowd sentiment is when the Tenkan Sen and Kijun Sen cross each other. This is called a 'T/K Cross' [Side note - i) a T/K cross over is strong when a buy signal is given above the cloud (bull territory), or when a sell signal is given below the cloud (bear territory), ii) a signal is weak if a buy signal is given in bear territory and vice versa, and iii) all signals in the cloud are medium).

This is the point when the crowd sentiment turned positive, and it has remained so for the past 20 months or so.

Also note, how every time the market corrects, it returns to the red line- the Tenkan-Sen, but bounces right up. This is a market that's hungry for more. With that in mind, look at the same period in some more detail :

https://www.tradingview.com/x/C5ZYeHdP/

II. Conversely, a clear negative trend has a T/K cross -over, but this time the the Kijun Sen comes below the Tenken-Sen, and the cross over takes place under the cloud (Point 'A' below) and once the Chikou Span,crosses below the prices, lines and the cloud, we are clear to go short or sell if we are holding for the short or the medium term. We get the all clear from the Ichimoku at point 'B' below, which is around $4080. Note how it goes and kisses $3000, which is also where the Tenkan -Sen in the macro chart (Point 'C' below).

https://www.tradingview.com/x/0Wst77k7/

III. Price or lines in the Cloud represents a cloudy crowd sentiment. It tells us that the price is in equilibrium.

IV. The Cloud always traps the price once it’s inside it, and tends to keep pulling it back towards it.

V. A flat red line, or a flat red topped cloud indicates a ranging/ trend less market.

VI. Always wait for a signal from all the individual components of the Ichimoku system to align before entering into a trade.

VII. The T or K line can be used as very useful stop losses when going long or short.

VIII. Price will always keep coming back to/ rubber banding around the T /K lines as the trend unfolds.

IX. Always enter a trade when the price is near T or K lines, never when it is very far away. Exit when its at a considerable distance. Basically enter a trade when the price moves out of it's state of equilibrium, i.e., the kumo/ cloud.

X. Do NOT set price targets when using the Ichimoku. The system works best on long time frames. When going long or short, trades entered into using the Ichimoku can be open for weeks, if not months.

XI. Not a thumb rule per se, but know that all the lines, T, K, C and those that make up the cloud are equilibrium lines and the Ichimoku system is thus a interplay of different equilibrium lines. Price is in equilibrium when it is within the cloud or in dis-equilibrium when it is above or below the cloud.

All in all, keep in mind that the Ichimoku does not tell us tell us about the ‘fundamentals’ about a stock, coin , token, etc, but rather, what the crowd is thinking about the coin you're interested in. This is a system to understand group dynamics within a closed system, in this case the cryptocurrency market. I found the Ichimoku most useful :

• if I already have a coin in mind that I wanted to accumulate but don't know when the right time to buy is;
• if I’m thinking of going long or short on a coin,
• to set stop losses.

Those are my basics. Thanks for sticking around. Feel free to ask me anything.

Cheers.