The Ichimoku Cloud system is a highly sensitive method of technical analysis, widely used to predict market movements and the probability of new trends. This indication system is a result of herculean efforts — its creator Goichi Hosoda, a journalist and mathematician, spent more than thirty years perfecting his prediction technique. Released in 1969, it instantly became one of the most useful tools in the international arsenal of financial analysis.
The original title of this technique is Ichimoku Kinko Hyo. In loose translation, it means a “one glance cloud chart”. This title reflects one of its main peculiarities: this system very clearly illustrates potential price movement, providing a reliable basis for fast and complete technical analysis. Because of this feature, this method attracted the attention of crypto traders — one cannot overestimate the ability to transform large portions of incoherent data into an intuitively understandable chart with clear indications of the price movement.
What Is It: Main Elements of the Chart
This method takes into account leading as well as lagging technical indicators, which form five fundamental chart lines:
● Conversion Line (Tenkan-sen), which represents a 9-period moving average.
● Base Line (Kijun-sen), which represents a 26-period moving average.
● Leading Span A (Senkou Span A), which represents a moving average of two previous lines (calculated for 26 future periods).
● Leading Span B (Senkou Span B), which represents a 52-period moving average (calculated for 26 future periods).
● Lagging Span (Chikou Span), which represents a closing price of the current period (calculated 26 past periods).
The main feature, which separates this method from similar analytic tools, is its treatment of the moving averages. Instead of deriving them based on the closing prices of the candles (the technique used for the creation of most of the classic candlestick charts), this method takes into account highs and lows during the predetermined period.
The Leading Spans A and B form the cloud — a central element of the analytic system.
How to Work with the Ichimoku Cloud Bitcoin Settings
Perhaps one of the most frequently asked questions regarding this chart is the meaning of its settings, namely nine, twenty-six, and fifty-two. What do they mean? Well, the initial settings represent a tribute to traditions. Number 9 comes from the traditional Japanese working week, which included six working days. Hence, the first indicator represents one and a half weeks (6 + 3 = 9). The rest of the settings are based on the number of days in a month, representing one (26 days) and two (52 days) working months respectively.
While these settings are still useful and perfectly reliable in stock markets, cryptocurrency trading requires additional adjustments. This approach is not generally accepted though, and many traders prefer classic Ichimoku cloud Bitcoin settings. The idea behind preserving classic settings is rather sound: traditionalists believe that changed settings lead to the appearance of false-positive signals, which maximize noise and reduce the overall quality of the system.
Nonetheless, the antagonistic school of thought insists on the necessity of adjustments, pointing out that the Ichimoku cloud BTC settings must reflect the contemporary reality of the cryptocurrency market, which is never closed. As a result, traders often choose other settings, namely 10, 30, and 60. The main principle remains the same: ten represents one and a half of the working week, whereas thirty and sixty represent the number of days in one and two working months respectively.
To improve the ratio of valid signals, many platforms double these numbers, relying on the 20/60/120 system. Surely, the quality of predictions based on such diverse settings may vary greatly. To make sure the chosen strategy is optimal it is advisable to combine this method with more conventional and considerably simpler approaches, such as automated copy trading tools like Jet-Bot.
This strategy proves to be optimal for inexperienced traders: they can create their approaches based on the calculations made with the help of the Ichimoku cloud method, and follow those traders who make similar decisions. By copying their tactics, one can learn more about the nuances of crypto trading and fill the gaps in their understanding of the Ichimoku principles.
How to Work with the Charts
Although some of its indicators may seem confusing, the underlying principle is quite understandable. The main dividing line separates two types of signals: momentum signals and trend-following signals.
These signals are calculated based on the market price and two lines of the moving averages (Base and Conversion).
● Bearish signals: the market price and/or Conversion Line fall below the Base Line.
● Bullish signals: the market price and/or Conversion Line rise above the Base Line.
These signals are determined according to the position of the market price. The prices, which move above the cloud, indicate the uptrend. The opposite position indicates the downtrend. As for the movement within the borders of the said cloud, the trend should be considered neutral.
● Bearish signals: the market price moves below the cloud.
● Bullish signals: the market price moves above the cloud.
In addition, the quality of these signals is also determined according to the color of the cloud, which depends mainly on the Leading Spans A&B.
Experienced traders may also derive essential data from the Lagging Span: this line on the chart is used to indicate the strength of the price action.
● Bearish signals: the Lagging Span moves below the market price.
● Bullish signals: the Lagging Span moves above the market price.
Advantages and Disadvantages for Crypto Traders
This system represents a very powerful and versatile approach to technical analysis: both flexible and time-tested, it is essential for predicting future trends and determining the strength of the signals and zones of resistance. However, all these advantages are useful in almost all spheres of technical analysis. What are the benefits and drawbacks of using it for crypto trading?
● Flexibility. This system has tremendous potential for customization, allowing traders to focus on those indicators that interest them most without neglecting any vital data.
● Deep insights. The proposed charts provide enough information for a profound analysis of various key signals, allowing for a better understanding of arising probabilities.
● Clearness. The title of this system is still consistent with its underlying principle: although over-sophisticated for beginners, this chart indeed makes it possible to comprehend the current situation in the market in one glance.
● An overabundance of data in comparison with specialized analytic systems.
● Reduced effectiveness when it comes to long-term forecasting due to the reliance on the short-term moving averages.
However, one can easily compensate for almost all of these drawbacks by using additional analytic tools.
Final Thoughts on Ichimoku Cloud BTC Trading
The Ichimoku cloud method represents one of the crowning achievements of mathematical thought. It is a very reliable, flexible, and illustrative trend identification system with a wide variety of uses. Although designed many decades before the very invention of cryptocurrencies, it still holds its high position among analytic tools in terms of efficiency and usability.