Thursday, December 27, 2018

Ichimoku cloud - How to trade momentum stocks?

Ichimoku cloud is a classical indicator within technical analysis that incorporates multiple methods and forms a very strong basis to identify the trend, momentum, reversals and much more.
I always believe in understanding the formulas and how any indicator functions and not just the application. This helps in developing conviction towards the trade setup using that specific indicator. If used aptly this indicator can also help in identifying the Elliott wave counts. Yes, I use any and every indicator in improving my Elliott wave, Neo wave counts and probable scenarios.
Now see below how this indicator can help in identifying the momentum
Titan 30 mins chart:

There are different ways to use Ichimoku indicator. I will not dwell right now into the construction of all the parameters but what is important is to see is the blue line (Tenkan – sen, also known as conversion line) and red line (Kijun – sen, also known as base line). If both of these lines are moving below the Ichimoku cloud and also prices are below both of these lines we have our first setup ready.
Now the key is to identify the area of maximum momentum with good trade setup. Over here one can see that whenever prices are retesting the blue line and breaking below the low there is a good sell opportunity provided the blue and the red lines are not too far away. These lines will converge and diverge. The entry opportunity is when they are converging and prices are retesting the blue lines. That is where the setup is complete and to pull the trigger we need to see break below the prior lows.
This is simple but very effective method in order to capture the momentum on any given stock, commodity or currency. As mentioned earlier there are multiple ways in which we can apply these methods and by combining with Elliott wave it provides excellent opportunity.
Based on above methods we have generated calls for Intraday stocks advisory and it has managed to work extremely well. However, there can be exceptions when the stock deviates from expectations and using a stoploss is extremely important.
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