Easy Ichimoku: Easy Trading with Ichimoku Kinko Hyo by Unknown

Author:Unknown
Language: eng
Format: epub

Figure 5.1 We observe that there is a bullish cross between the Tenkan Sen line (red) and the Kijun Sen line (blue) on the 4-hour chart in bitcoin. The cross occurs below the Kumo, making it a weak bullish signal.

In this case, the most advisable action is to wait for the prices to break the Kumo, as we will see in the next chapter. It occurs nine candlesticks later. Prices break out of the Kumo on a wide area, indicating strength, with the Tenkan Sen and Kijun Sen lines showing a positive slope and the Chikou Span clearly above the prices.

The extra confirmation came earlier with the cross between Tenkan Sen and Kijun Sen that puts us on notice. True, we would have missed some part of the beginning of the trend, but there was still a lot to go.

Once prices break out of the Kumo upwards, they are supported by the Tenkan Sen line with some crosses, but they never cross the Kijun Sen line that would act as a dynamic stop loss. Regardless of where our stop was (Kijun Sen or Kumo), the trade would have been excellent.

Charting software: Tradingview

Similarly, it may be the case that the cross of the Tenkan Sen and Kijun Sen lines occur with the prices relatively far from these two lines.

Typically, in situations like this, we would wait for a possible pullback to one of the lines or both. Especially in those cases in which the Kijun Sen is flat.

Moreover, if the price is far from the Kijun Sen, the stop loss will be many dollars away, adding risk to the trade if it goes wrong. Or even making it impossible to take the trade since the stop loss will risk more than 2-3% of our capital (or whatever percentage we are using in our money management system).

Prices should be above the Tenkan Sen and Kijun Sen lines to open a long position, while in the case of a short position, they should be below these two lines.

As always, we must show patience and discipline when looking for the ideal conditions in our trades. Do not hurry because there will be plenty of valid signals among all the financial instruments that a trader has access in today's markets.

Confirmation by the Chikou Span

The confirmation of the buy or sell signal by the Chikou Span line is crucial, and sometimes not enough importance is given to it.

The Chikou Span must be above the price to indicate that an upward trend is valid or below the price to show that a bearish trend is healthy.

If it is at the same level as the price, it shows a consolidating lateral market with no momentum, which means that the Ichimoku system will not be too useful. We must look for signs of sound and healthy trends, not for ranging markets.

The ideal condition is that the Chikou Span line is free of obstacles on its way up or down. We don't want it having to cross the prices, the Kumo, or even nearby support or resistance lines that we may have drawn.

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