Ichimoku Cloud

Ichimoku Kinko Hyo (IKH) or simply Ichimoku is a very useful and informative technical indicator. It’s name is translated from Japanese as a “glance at a chart in equilibrium”. The idea is that you will learn everything you need to know about the state of the market with just one sight on a chart containing this indicator.

Ichimoku indicator performs several important tasks. It:

• marks the direction of the dominant trend;
• shows momentum and strength of a trend;
• provides reliable support and resistance levels;
• gives trade signals.

At first, this indicator may look intimidating but when you know it you will find it rather simple and invaluable in market analysis.

In the following tutorial, we will tell you about the elements of Ichimoku and the signals they produce. We will explain how to analyze the market with this technical tool.

The elements of Ichimoku

The indicator is based on moving averages which have some modifications. Its lines have traditional Japanese names as well as conventional modern ones.

Have a look at the example of the Ichimoku indicator on the chart. We can distinguish the 3 layers — the past, the present, and the future.

'Present' of Ichimoku indicator

Let’s start with the so-called “present”. It’s characterized by 2 lines — Kijun and Tenkan. Of these two, Kijun (the base line) is a moving average with a bigger period. As a result, it measures medium-term momentum and has more weight than Tenkan. The price crosses Tenkan more often than Kijun, and if the price does cross Kijun, it signals changes in the market.  

'Future' 

The “future” is represented by the Ichimoku Cloud. The cloud is formed by the 2 moving averages which are shifted forward. If the moving average with the bigger period (Senkou Span B) is below the moving average with a smaller period (Senkou Span A), the Cloud is considered bullish. Its color is usually light. If Senkou Span B is above Senkou Span A, the Cloud is considered bearish. Such Cloud often has a darker color. Bullish Cloud means that buyers dominate the market, while bearish Cloud shows that sellers are in control. You can see that the Cloud changes color from time to time reflecting the shifts of power from bulls to bears and back. The width of the Cloud matters: the wider the bearish Cloud, the stronger are the sellers. To understand the current power balance of the market, look at the part of the Cloud that is “in the future”, i.e. to the right of the current price. As for the part of Cloud, which is aligned with the current prices, it acts as support and resistance for the price.    

'Past'

In the “past”, there’s a single line called Chinkou Span. Unlike the other Ichimoku lines, it’s not a moving average, but simply a price chart moved a number of periods back so that it lags behind the market. The way this line interacts with the price chart itself offers hints for traders.     

Why are some elements of the indicator switched forward and some are placed backward? Firstly, it would be very difficult to read the chart if all the 5 lines were in the same area. In addition, this way the elements of Ichimoku indicator produce trade signals. The following tutorial will show you how to interpret these signals.

How to implement Ichimoku

To apply Ichimoku to a chart in Metatrader, click “Insert”, choose “Indicators”, and pick “Custom”, then “Ichimoku”. In the settings, you can choose values for Tenkan, Kijun and Senkou Span B. You can also adjust the colors the indicator’s lines according to your preferences.

The default settings 9-26-52 are the original parameters proposed by the indicator’s developer. They are popular among traders and can be used on any timeframe. At the same time, you are also free to adjust the default settings. The key thing is to choose the increasing values so that the figure for Tenkan-sen is the smallest and the value for Senkou Span B is the biggest.

Trading with Ichimoku

The position of Ichimoku lines can give traders a clear view of the existing trends. When the market is sideways, the indicator lines are horizontal so that the price is fluctuating around them. The Cloud is thin and changes its color often.

If the price is above the Cloud, Tenkan and Kijun and the bullish Cloud is solid, it’s an uptrend. Chinkou Span will be above the price in this case. 

If the price is below the Cloud, Tenkan and Kijun and the bearish Cloud is solid, it’s a downtrend. Chinkou Span will be below the price in this case. 

The Ichimoku lines produce trade signals by crossing each other and the price, that why there are many different signals in the table below. Notice that when a new trend starts, signals from different elements of the indicator tend to appear around the same time and point in one direction.

Let’s review an example of how Ichimoku provides trade signals.

1 - The price went below Kijun-sen. It’s a first bearish signal.

2 - Tenkan-sen fell below Kijin-sen. 

3 - Chinkou Span crossed the price chart to the downside.

4 - The price broke below the Ichimoku Cloud.

5 - The Cloud switched from bullish to bearish.

The signals 2-4 appeared around the same time and signaled the start of a bearish trend. They point at the opportunity to open a sell trade. The lines of the indicator then acted as resistance for the price.

6 - Chinkou Span broke back above the price chart. It’s possible to take profit from a short position. 

7 - The price went above Kijun-sen.

8 - Tenkan-sen went above Kijun-sen.

9 - The thick bearish Ichimoku Cloud acted as resistance for the price but it finally managed to break in.

10 - The Cloud switched from bearish to bullish. The price went above the Cloud. There are indications of an emerging uptrend, although, given the fact that Chinkou Span corrected to the price chart, there may also be a sideways trend for some time. 

The secrets of Ichimoku vedeo:

Momentum

In technical analysis, there’s such term as “momentum” that refers to the strength behind the trend. Momentum is gauged by a number of technical indicators (RSI, Stochastic Oscillator, MACD). Each indicator uses a slightly different approach and has its own formula. Here we will present another indicator from this group. It’s name is simply “Momentum”.

The Momentum technical indicator measures the amount that an asset’s price has changed over a given period of time. The indicator’s formula compares the most recent closing price to a previous closing price.

How to implement Momentum

To add the Momentum to a chart, click “Insert” – “Indicators” – “Oscillators” – and you will see the “Momentum”.

The default parameter for Momentum in MT4 is 14, but you can set it to whatever value you wish. The indicator can be successfully used on any timeframe. Notice that the smaller the timeframe used, the more sensitive the performance will be. At the same time, the indicator is likely to generate more false signals compared with its work on a bigger timeframe.

How to interpret Momentum technical indicator

The Momentum oscillates around a center value of 100. This level is not automatically marked in MetaTrader, but you can draw it. When the indicator’s value rises above 100, it signals that buyers are in charge. On the contrary, a move below 100 is a sign of bears’ domination.

If Momentum reaches extremely high or low values (relative to its historical values), the odds are that the current uptrend/down will continue. Extreme levels of the indicator mean that there’s enough momentum behind a trend to keep the price going.

At the same time, the Momentum indicator can also help to identify when a market is overbought or oversold. When a falling market is oversold, it may be about to bounce. If the Momentum bottoms and turns up, it’s a buy signal. When a rising market is overbought, it may be about to fall. If the Momentum peaks and turns down, it’s a sell signal.

You can apply a short-term moving average to the indicator so that it would be easier to determine its turning points. To do this, choose “Moving Average” among MT4’s trend indicators in the “Navigator” panel, and then drag and drop it into the Momentum indicator chart. In the window that pops up, choose “First Indicator’s Data” from the “Apply to” dropdown menu of the “Parameters” tab.

The strategy will then be to buy when the Momentum crosses the MA to the upside, and sell when it crosses the SMA to the downside. This way the timing of the signals will somewhat improve.

It’s wise to pick the signals which are in line with the trend you observe on a bigger timeframe or using other trend indicators.  

Enter the market only after prices confirm the signal generated by the indicator. If the Momentum has topped, wait for the price to start falling and then sell.

Often the Momentum begins to turn before the price does. When the Momentum is diverging from the price, it may be regarded as a leading indicator pointing at the potential top (when the Momentum is falling while the prices are going up) or bottom (when the Momentum is increasing while the prices are going down).

Conclusion

The Momentum oscillator helps traders to notice subtle shifts in the force of buying or selling. It’s possible to use it for generating trade signals, although in this case we strongly recommend making sure that you combine the indicator with price action signals. Notice that the Momentum indicator can offer even bigger benefits if it’s used for confirmation of signals provided by other tools.

Tesla buys $1.5 billion in bitcoin, plans to accept it as payment

Tesla announced Monday it has bought $1.5 billion worth of bitcoin (CNBC's news 8Feb)

In a filing with the Securities and Exchange Commission, the company said it bought the bitcoin for “more flexibility to further diversify and maximize returns on our cash.”

Tesla also said it will start accepting payments in bitcoin in exchange for its products “subject to applicable laws and initially on a limited basis. That would make Tesla the first major automaker to do so. The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments.

Tesla’s move into bitcoin represents an investment of a significant percentage of its cash in the investment. The company had more than $19 billion in cash and cash equivalents on hand at the end of 2020, according to its most recent filing.

The moves raise questions around CEO Elon Musk’s recent behavior on Twitter, where he has been credited for increasing the prices of cryptocurrencies like bitcoin and dogecoin by posting positive messages that have encouraged more people to buy the digital currencies.

Two weeks ago, the billionaire Tesla owned added the hashtag #bitcoin to his Twitter bio, a move that helped to briefly push up the price of the cryptocurrency by as much as 20%. Two days later, he said on the social medial chat site Clubhouse: “I do at this point think bitcoin is a good thing, and I am a supporter of bitcoin.”

Bitcoin prices surged to new highs Monday following Tesla’s announcement, reaching a price of at least $44,200. Tesla shares were up more than 2% Monday morning. In its SEC filing, Tesla warned investors of the volatility of bitcoin’s price.

Musk has gotten into trouble for his market moving tweets in the past, but it’s unclear how that applies to his tweets about cryptocurrencies. Most notably, the SEC charged Musk with fraud in 2018 for his tweets about taking the company private at $420 per share.

Musk ultimately settled with the SEC, and was forced to give up his role as chairman of the company’s board and pay a $20 million fine on top of another $20 million fine for the company itself.

Bitcoin chart analysis after tesla buys $1.5 billion and reaches $50k

Bitcoin (BTC/USD) has made yet another massive bullish breakout. Tesla announced its purchase of $1.5 billion worth of Bitcoin.

On the 1 hour chart, we can see that the impulsive push higher is probably a wave 3 (green) of wave 3 (orange). This means that the current pullback is a wave 4

A retracement is expected to take place (orange arrows) in wave 4 (orange) back to the support zone around $43-45k. The main targets after the $50k are $55k and $61k.

The bullish breakout delivered on the trading idea from last trading week. Let’s now discuss what to expect this and next week.

Price Charts and Technical Analysis:

The BTC/USD bullish breakout confirmed the uptrend continuation. The deeper pullbacks from last week indicate a wave 1-2 (pink/orange) pattern. The current strong push up is likely an impulsive wave 3 (orange).

But the main target for the short-term is $50,000 psychological round level. Although price action could easily break (green arrow) the smaller triangle pattern (purple lines), there is not much space before hitting that target.

A retracement is expected (orange arrows) after hitting the target. Then a bullish bounce should resume the uptrend again (blue arrow).

On the 1 hour chart, we can see that the impulsive push higher is probably a wave 3 (green) of wave 3 (orange). This means that the current pullback is a wave 4 (green) and the future breakout a wave 5 (green).

After that, a retracement is expected to take place (orange arrows) in wave 4 (orange) back to the support zone around $43-45k. The main targets after the $50k are $55k and $61k.

*The analysis has been done with the ecs.SWAT method and ebook.