[Trading strategy with RSI and ICHIMOKU]- Steemit Crypto Academy- Homework post for Professor @abdu.navi03 by (by @huzaifanaveed1))
Q1. Put your understanding into words about the RSI+ichimoku strategy
No indicator is the best indicator. Let's keep this straight first. You can never have 100% correct signals by using a single indicator on a chart. Also, it depends upon the strategy and the comfortability of the traders as well. If we talk about the Relative Strength Index (RSI) it measures the movement of an asset's price in a specific timeframe. There are two indications that the RSI gives which are the Overbought and the oversold conditions. When the value of RSI crosses 70 it is considered to be overbought. An overbought condition basically means that the price might pull back any time soon. When the indicator goes below the 30 it is considered to be oversold which basically means that the price might bounce back up soon. But there are a lot of drawbacks of using RSI which include:
No indications of the Volume in the market.
Doesn't work well in the presence of an ongoing trend.
The Ichimoku helps us determine the momentum, support, and resistance levels in the market. It consists of Tenkan-Sen, Kijun-Sen, Senkou Span A, Senkou Span B and Chikoi Span. But there are some faulty areas in the Ichimoku such as late signals.
Now when we talk about using the RSI and the Ichimoku together, that's when things get serious and real. Combining the RSI and the Ichimoku gives us multiple advantages, that being:
- having early detection of the trend.
Being a trader, detecting a trend early goes in your favor all the time. By doing so, you can open up your positions and have profitable trades.
- Clearing False Signals
Oscillating Indicators such as RSI tend to give false signals sometimes. By using these two indicators together, we can clear the false signals.
- Bearish and Bullish Trend Divergence.
Using the Ichimoku alongside RSI can give us early and prominent bullish and bearish trend signals.
Q2. Explain the flaws of RSI and Ichimoku cloud when worked individually
Flaws of RSI using individually.
Relative Strength Index is very prone to false signals. Sometimes we tend to see the RSI lone moving up the oversold conditions which should mean that the price of the asset is about to go bullish but in reality the price further drops, resulting in huge losses of the traders. Or sometimes the RSI gives a false bearish signal in which the RSI moves below the overbought conditions. The trader thinks that the price is about to drop but in reality the prices go up alternatively.
Furthermore, RSI is not preferable for scalp trading as it oscillates in the overbought or the oversold conditions for a long time due to which you won't be able to get good trading opportunities.
As you can see in this demonstration above how RSI indicated a downtrend movement yet the price kept on increasing.
Flaws of using Ichimoku individually
Ichimoku might be one of the best indicators out there but like every other indicator, it comes with its flaws. The most important and the most significant flaw being associated with the Ichimoku is that it gives off late signals. For instance, there's a start of a bullish trend. For a trader to make profits by this, he would want an Indicator that gives off good signals before the trend starts. Only then it would be possible to take advantage of the ongoing trend. But with Ichimoku, sometimes the signals are so late that it gets difficult for the trader to have profitable trades. The time Ichimoku starts signaling the trend is already at its last stages.
Q3. Explain the flaws of RSI and Ichimoku cloud when worked individually
The RSI and the Ichimoku collectively can give off perfect trend identification signals, which were lacking when we used them individually. The most important thing is to keep an eye on both indicators at the same time.
If we talk about a bullish trend, the RSI will form a double top near the overbought region. What does that mean? We'll notice the RSI indicator signaling an overbought condition with a slight correction and then again surpassing the 80 lines. Now, to be completely sure of trend identification, we'll use the Ichimoku, which will confirm the trend movement by being below the price movement.
In this demonstration above we can clearly observe how both indicators help us in indicating a trend identification which can prove to be very profitable in trading.
Q4. -Explain the usage of MA with this strategy and what lengths can be good regarding this strategy (screenshots required)
One of my favorite indicators while trading is the Moving Average Lines due to a lot of reasons. One of the most important reasons for my liking of the MA lines is their indications of the Dynamic support and resistance levels. For this question, I'll be using the Triple Moving Average (TMA)
In this demonstration above we can notice how the TMA has worked in our favor alongside the RSI and the Ichimoku. The lengths of the MA lines were used 10, 100 and 200. These were done so that we could get better results. The TMA gave us good trend identification signals in which they played the role of support as well. The main role is played by Ichimoku, as we got slow confirmation from the MA line as justified in the demonstration above.
Q5. Explain support and movement with this strategy (screenshots required)
Support and Resistance are two very important aspects of any market. These two levels can shape your trades in your desired direction. For a better understanding of the support and resistance strategy, we'll first need to understand what these terminologies are:
- Resistance
Resistance is that level in the market where an asset's price usually gets rejected and turns into a bearish move. The price can also break the resistance, giving you profitable trades
- Support
Support is that area in the market where the price usually retests in the upward direction. We notice a trend reversal from the support level. But the price can also break the support line and move further down. So you need to be careful while trading near the support region.
- Support and Resistance Strategy in a trending market.
In a trending market with the RSI + Ichimoku strategy while trading in the support and resistance levels we need to look out for Ichimoku first as it will play a very important role in our trades.
When the Ichimoku cloud is below the price movement, it tends to serve as a support level. Another indication of Ichimoku being as the support level is when it is green it will play its role as a support level. Alongside this, the area also matters a lot while trading in these areas using this strategy. The strength of the support and the resistance levels can be determined by measuring the gap between the price movement and the Ichimoku cloud. The more the gap, the stronger the support/resistance.
serving as support
serving as resistance
- Support and Resistance Levels in a Sideways Market
In a Sideways market, we need to have a better grip of the RSI as it will work the best for us. We need to observe the overbought and the oversold conditions of the market.
The RSI indicator will oscillate between the 30 to 60 levels indicating the support and resistance levels. In the demonstration above you can observe that as well.
Q6.In your opinion, can this strategy be a good strategy for intraday traders?
In my opinion, the RSI + ICHIMOKU strategy can work very well in the favour of intraday traders. Why's that? The RSI gives off good overbought and oversold conditions but that's not enough is it? When we combine the RSI with the Ichimoku cloud we get better results. We get quick indications of trend identification, we can get good support and resistance levels, and most importantly by using both of these Indicators together we can get a good exit and entry points in the market.
With that being said, I will always mention this as well no Indicator gives off 100% correct results. It all depends upon the comfortability and the grip of the trader that he/she has on any Indicator. Using both of these Indicators together can improve your trading decisions to quite a big extent as both of these Indicators will help you in the scalp as well as swing trading.
Q7. Open two demo trades, one of buying and another one of selling, by using this strategy
- SELL TRADE (TRX/USDT)
In this demonstration of TRX/USDT above, I used the RSI + ICHIMOKU strategy which worked perfectly in my favor. The Ichimoku cloud being above the price action, served as a resistance and the RSI was oscillating near the mid area after having s bullish rally. I opened my sell trade with stop loss and take profit intact.
- BUY TRADE (SHIB/USDT)
In this demonstration above of SHIB/USDT I saw the Ichimoku cloud serving as a support and as well as RSI which was moving in the overbought conditions. With a hope of a double top, I placed a buy trade with the stop loss and the take profit in 2:1 (R: R) The trade was executed.
An excellent strategy with using these two outstanding indicators. The RSI + ICHIMOKU strategy can serve as a very profitable strategy while used in intraday as well as long-term trades. Both of these Indicators overcome the shortcomings of the individual indicator. The RSI gives us the overbought and the oversold conditions as well as give us strong indications of support and resistance levels in a sideways market. While the Ichimoku helps us in determining the momentum, the buying and selling pressure as well as early trend identification in trending markets.
I appreciate the initiative taken this season of focusing more on trading as we students are getting to learn a lot from these lectures. I thoroughly enjoyed making this task and I hope you all had a good read as well. Thank you professor @abdu.navi03 for this insightful lesson. I look forward to your next tasks.
Ps: all screenshots were taken from tradingview.com while the grammar has been checked from grammarly
Regards,
@huzaifanaveed1
has there been a good research experiment sir to see this picture ☺️🙏
@huzaifanaveed1