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Summary
Arete Trading takes a deep dive into one of the most robust technical analysis indicators, the Ichimoku Cloud, which is a tool originating from Japan and developed over 30 years by journalist Goichi Hosada. This video simplifies the complexity by breaking down its components, calculations, and basic trading signals for beginners. The Ichimoku Cloud is praised for its capability as a leading indicator, providing high probability trade signals by assessing market momentum and trends. The tutorial is aimed at building foundational knowledge in using this indicator for trading by focusing on two simple signals and suggesting the use of additional indicators like RSI for more accuracy.
Highlights
The Ichimoku Cloud helps in increasing the accuracy and probability of forecasting price movement. 🔮
Understanding the background and calculation of the Ichimoku Cloud is essential for leveraging it in trades. 📊
Two simple signals are: when the conversion line crosses the baseline (buy/sell signals), and the position of price relative to the cloud (bullish/bearish signals). 📈
The cloud's thickness indicates the strength of signals, and clear understanding aids in making informed trading decisions. 🌦️
Using other indicators, like RSI, in conjunction with Ichimoku can reveal potential false signals, providing a trading edge. 🛠️
Key Takeaways
The Ichimoku Cloud is a leading indicator developed in Japan for analyzing support, resistance, trend direction, and momentum in trades. 📈
It consists of multiple parts: Conversion Line, Base Line, Lagging Span, Leading Span A and B, which help in determining short and long-term trade signals. 🔍
Combining Ichimoku with other indicators like RSI can aid in avoiding false signals and enhance trading decisions. 🤝
Overview
The Ichimoku Cloud is a comprehensive leading indicator that has been finely tuned over decades, offering traders a formidable tool to identify potential market movements well before traditional indicators would. This seminar by Arete Trading breaks down its use in a straightforward manner, aiming to demystify its complex calculations and interpretation for beginners.
At the core of Ichimoku lies five key components - Conversion Line, Base Line, Lagging Span, and two Leading Spans - which collectively furnish traders with critical insights on market conditions. By deciphering these components, traders can accurately identify both short and long-term market signals, thus enhancing their decision-making process.
Beyond understanding its singular application, the video emphasizes the importance of integrating other indicators like RSI to bolster one's trading strategy. Such combinations can mitigate the risks of false signals, emphasizing the significance of thorough market analysis for trading success.
00:00 - 00:30 hey everybody so today i'm pretty excited because this is one of my favorite indicators and it's a little complicated uh the ichimoku cloud but once you understand it it can really yield very good results as far as high probability trades so i wanted to spend some time going over it now today we're going to go through a very basic understanding of it we're going to talk about what it is
00:30 - 01:00 we're going to talk about the parts of it we're going to talk about how those parts are calculated i'm going to give two simple signals and then how to determine the strength of those signals and i want to show how to combine it with another indicator but it's important to have a general grasp of this and the one thing that i'm always looking for in my trading is i'm always looking for an edge right i'm always looking for inches so how can i do better and the one thing that i find is that
01:00 - 01:30 using leading indicators versus using lagging indicators is one of those things and this is one of the few leading indicators that's actually out there so let's just jump right into it i think understanding the background of this is a little important so the ichimoku cloud it's a technical analysis method this was created in japan it was created by a gentleman that was a journalist called gochi hasada and he started i believe in like the late 60s
01:30 - 02:00 and essentially what he did was look for a way to determine where support and resistance lines were as well as trend direction and momentum okay and he did this by utilizing which was the format in japan which was candlesticks so what we're looking to do by using this cloud and the amount of data points with candlesticks this should increase the accuracy and probability of your trades in
02:00 - 02:30 forecasting price movement that's the purpose of it okay so i do think it's important to unders to just grasp the concept he spent 30 years perfecting this so 30 years perfecting this before even releasing it so if you think about an economic cycle being three and a half years this has gone through at least six economic cycles at least so just keep that in perspective as we as we get into it but let's just jump into the parts of it
02:30 - 03:00 so in regards to how i see this playing out we're going to walk through the five major parts and then by understanding those parts and how they're calculated we'll get a better grasp of what this is actually telling us so the first we're going to go over is this yellow line the first part of this yellow line is called 10 can send or conversion line okay the second one we're going to go over is this purple line right here
03:00 - 03:30 the kaiju sen or baseline next is this green line called the chiku span or lagging span here we have the senku span a or leading span a senku span b and leading span b
03:30 - 04:00 okay so i think it's important to understand what these are telling us this is a lagging indicator these are leading indicators okay now let's just talk for a moment about how they're calculated all right so to start the conversion line is calculated through a 9 day high low divided by 2. the purple line is calculated by 26 days
04:00 - 04:30 high low divided by 2. the green line is the close of the last 26 days now one thing you'll note about this is how it ends right here and why does it end here because it's 26 days behind so it ends here hence lagging indicator the cinco span
04:30 - 05:00 a is a leading span a correct so we understand that now stay with me this is a combination of two other indicators or parts that are on this page okay so it is a mixture of the kunjun sen or baseline plus the tech consent or conversion line okay they are added together
05:00 - 05:30 divided by two and then you add 26 days to it hence how we can see how it extends out the red line sen span b leading span b 52 days high low divided by two add 26 days to it and you can see how that comes out as well
05:30 - 06:00 now that we have a basic understanding of what they are and how they are calculated we're going to get into how you can determine not only the strength but just two indicators and two that you can use and there's several more here but we're going to go through two today that you can use to determine your trading strategy and i just want to stress this this is one of the most comprehensive technical analysis indicators out there period
06:00 - 06:30 it's very important to understand that and give yourself a little bit of time to learn this this is not an easy one it's not just like looking at a moving average i guess is the best way to explain it so let's just focus on one simple trading strategy and we can see how that is being utilized so let's go back a little bit here on this chart and what i want to point out very simply
06:30 - 07:00 is when your conversion line crosses up through your baseline it is a trade signal so as we can see here when the conversion line crosses your baseline it is giving you a signal that is a buy signal okay when they can i'll say it again so when the conversion line
07:00 - 07:30 crosses the baseline it's a buy signal all right now when you see the let me give you an example right here the conversion line cross your baseline okay that is a sell signal so if you look at this chart and understand this just a little bit and you can go through these movements and
07:30 - 08:00 how they transpired from here and then what that would lead to until you cross back over and of course nothing's perfect right we all know that but you can see these right here how you crossed here and let's just zoom in on that one and just focus on it for a moment so you can see the cross here you can see the cross here these are all signals these are buy and sell signals
08:00 - 08:30 now they're not the be-all end-all but it's a signal that you need to pay attention to and it's also a short to medium term signal it is not a long-term signal so i think it's important to understand that this is a short or medium turn signal it is not a long-term signal so with that said let's focus on what is a long-term signal well that in and of itself is going to be the cloud
08:30 - 09:00 which is right here so the cloud should be viewed in a couple different ways and let's just expand this out just a little bit so we can get a couple more really good examples of what we're seeing here so what we're looking for in regards to the cloud is this if you are above the cloud you are in a bullish cycle and your trade should be heavily leaning towards buys
09:00 - 09:30 if you are below the cloud that is a bearish signal and when you see that bearish signal you should be on the short side or selling if you are in the middle which is rare but can happen you need to let it sort itself out because you are trendless and let it determine what it's going to do and that's a great way to combine these
09:30 - 10:00 two and utilize them like here to utilize those two signals to determine what's going to happen you can see here very cleanly where we were in the cloud and our first signal that we got was a buy signal from the conversion line crossing the baseline so that is the longer term signal now to determine the strength of that signal the
10:00 - 10:30 wider the gap of the cloud the stronger the signal so the wider the gap the stronger the signal so in response to that you can see here clearly how the signal was very shallow and then got wider and wider and how we stayed above and then when we broke how wide it got and stayed down now during this period of time there was no signal
10:30 - 11:00 none now you have your short or medium term signal execute right here on top of that you then have us getting above the cloud right here so getting above that cloud was your long-term signal so your short-term signal or medium-term signal fed into your long-term signal which gave you confirmation and then you could see how the trade progressed from there so there are two
11:00 - 11:30 trading strategies that you could use with this now i want to make this abundantly clear not everything is going to be perfect but this is one of the most comprehensive technical analysis indicators you can use uh it is in my estimation probably one of the top three that you should really be looking at and it there's there's a lot to it especially in the way that it's calculated and especially in the way that it is a
11:30 - 12:00 leading indicator it also allows you to determine something that another indicator that i like to use it lets you determine the strength of a move which essentially is allowing you to determine the magnitude of the move and you can see how that played out here here here and how it was narrow how we didn't have as much of a move and then when it gets wider how that works okay so again there are several trading strategies based upon this what i am
12:00 - 12:30 simply pointing out are two very easy ones to start with in the future i'm going to do more advanced ones of this indicator but we need a baseline like anything else to start so you're going to want to subscribe to the channel and click notifications because we're going to keep getting into this in depth and you'll start seeing how to make this even have a higher degree of probability with longer term signals so we've now gone through
12:30 - 13:00 how we calculate it what the parts are two signals that you can use okay and those signals are important it's very important to understand bullish and bearish and where you are long term in a chart but again they're not be all end-all so what i like to do is use another indicator with this and i like to use the rsi now as everyone knows or may not know and there'll be a video at the end of this on rsi
13:00 - 13:30 rsi determines the magnitude of the move so if you can utilize rsi with this then you're going to be able to spot times where you're going to have a possible false signal and one of those times was right here as we can see the rsi gave us a positive divergence while the cloud was giving us a signal that we may break but the rsi which is also a leading indicator
13:30 - 14:00 is telling us what we may see right these are all probabilities there's there's no there's no 100 certainty in this but by adding levels to this and layering it and then putting yourself in a position where you're looking at leading indicators why other people are looking at lagging indicators gives you an edge it's just a fact so i hope you found this helpful
14:00 - 14:30 this was a very basic understanding of this for beginners and frankly this is all for beginners that they need to know but i think that you should focus on those two signals and how those two signals can help you and increase your performance look at this video on rsi it's really important to understand that i would also work on your candlestick patterns and i would also work on truly grasping this concept
14:30 - 15:00 because when you get this concept it'll take your trading to the next level so i hope you find that helpful everybody trade short