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Ichimoku & Fibonacci: Crypto Trading Technical Analysis Guide



31 Mar, 2021


The name may sound long and complex, but rest reassured that Ichimoku Kinko Hyo only makes your technical analysis for crypto trading easier, not harder! It’s a Japanese phrase that roughly translates to “one-piece balanced table.”

In cryptocurrency investing, Ichimoku Kinko Hyo allows you to find out everything you need to know about the price action in “one glance”: Ichimoku.

Ichimoku Kinko Hyo: Components

This indicator consists of several different moving averages (MAs). Each of these MAs serves a specific purpose, and their positioning versus each other and the price can help you understand the current market sentiment and predict its future direction. Here are some of the components you see when you add the Ichimoku Kinko Hyo (ICH) to your chart:

  • The Ichimoku cloud (Kumo)
  • The base line (Kijun)
  • The turn line (Tenkan)
  • The delay span (Chiko)

If you identify one or more of the following signals on a chart, chances are that the price may continue higher and therefore it’s a good time to buy:

  • If the price is moving above the Ichimoku cloud, this movement may indicate a bullish momentum in the market and is therefore a buy signal.
  • When the Chiko (delayed) line moves above the cloud, it can be considered a buy signal.
  • When the Tenkan (turn) line crosses above the Kijun (base) line, that crossing may indicate a shift in the market sentiment from bearish to bullish and therefore be a buy signal.

Sell signals

The following represent sell signals:

  • When the price moves below the Ichimoku cloud
  • When the Chiko (delayed) line crosses below the cloud
  • When the Tenkan (turn) line crosses below the Kijun (base) line

Other common interpretations

Besides pure buy and sell indications, Ichimoku Kinko Hyo can also help you identify support and resistance layers as well as provide a general understanding of market conditions. Here are some of the interpretations:

  • As long as the five lines are parallel, the trend will continue in that direction.
  • When the prices are inside the Ichimoku cloud, that means that the market is in the process of consolidating, which isn’t a good time to buy or sell.
  • You can use the lower band of the prevailing cloud as a layer of support, which is a level that the price has difficulty breaking below.
  • You can use the upper band of the prevailing cloud as a layer of resistance, which is a price that the market has difficulty breaking above.

You can use Ichimoku as an entry level for both buy and sell positions. You can also combine two or more of the interpretations to adjust your strategy based on your risk tolerance.

Fibonacci Retracement Levels

Mathematically, the Fibonacci sequence is the series of numbers where each number in the sequence is the sum of the two numbers before it. So if you add the numbers 0 and 1, the result is 1, and you add that digit to the sequence. Then add up 1 and 1 and add the result, 2, to the sequence. Now add 1 and 2 — you get the idea. You can continue this way forever: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 …

The Fibonacci sequence has applications in technical analysis, but the sequence itself isn’t exactly what you use. The Fibonacci retracement levels you use in technical analysis are a result of calculating the alternate ratio between the numbers in the sequence. By applying the ratios to an uptrend or a downtrend, you can identify support and resistance levels easily.

Here’s how the ratios are calculated: After the first few numbers, if you divide any of the numbers by the succeeding number, you get approximately 0.618. For example, 34 divided by 55 rounds to 0.618. If you calculate the ratio between alternate numbers, you get 0.382. The ratio between every third succeeding numbers is 0.235. The sequence used in technical analysis consists of these ratios: 0.78, 0.618, 0.5, 0.382, and 0.236.

Combining Ichimoku and Fibonacci Techniques

When you’ve got Ichimoku and Fibonacci indicators on your charts, you can apply both of them. Initially, seeing so many lines on the chart may be disorienting, but after a while it starts making sense as you get used to it.

Sometimes you have so many options to choose from when selecting a trend (up or down) for Fibonacci. More often than not, most trends give you the same Fibonacci retracement levels. The key Fibonacci resistance and support levels also often coincide with Ichimoku layers of support and resistance because Fibonacci is working to show you the key psychological levels that remain true across the board. This specifically is the beauty and magic of Fibonacci.

You can use Ichimoku and Fibonacci in a number of ways to assist you with your technical analysis. For example, you can use Ichimoku to spot a buy or sell signal, and then use Fibonacci levels to determine the price at which you can take profit.

Here’s an example: You apply Ichimoku to the chart and notice an Ichimoku buy/sell signal. This discovery is a perfect opportunity to identify an entry point based on the double bottom chart pattern and the Ichimoku signal.

But where do you go from there, and where do you take profit? This point is when you can use Fibonacci. Depending on your risk tolerance you can select a Fibonacci retracement level as your profit target and create a limit order through your broker account to sell at that level. (A limit order is a direction you put through your broker to buy or sell an asset at a specific price.)

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