Crypto Academy / Season 3 / Week 5 - Homework Post for Professor @kouba01

This is Season 3 Week 5 of Steemit Crypto Academy and I'm writing Homework Task for Professor @kouba01

1)

Discuss your understanding of Kumo, as well as its two lines. (Screenshot required)
source

Ichimoku Kinko Hyo is a trend indicator available in different trading platforms. The cloud spaces in the indicator are termed as the Kumo. These cloud spaces are what indicates the direction of the market and its trend.  

The cloud space is created between the two span lines, span line A and B.  the kumo helps the trader identify the following things:

• Direction of the market

• Areas of support and resistance

During an uptrend the kumo can be seen to be moving up and the Senkou Span A is above Senkou Span B.

Chart: ETH/USDT

Time frame: 1 day

The opposite happens during the downtrend. The pattern can be seen to be moving downward and the Senkou span A is below the Senkou Span B.

Chart: ETH/USDT

Time frame: 4hours

In the sideways the cloud space can be seen to lie flat.

Chart: ETH/USDT

Time frame: 4 hours

The lines:

Ichimoku Kinko Hyo has two lines Senkou span A and Senkou Span B which together make up the kumo cloud.

Senkou span A

It is the other name for leading span A.  It is one of the lines forming the space cloud. It is calculated by taking the average of the tenkan-sen line with the kijun-sen line.  We can further extend it by 26 Moving average lines. It helps in identifying the support and resistance levels and hence the price movement. In the uptrending market when the price of the asset rises the leading A line is on the top of the kumo cloud.

Senkou Span B

It is the other line that along with the leading span A line forms the Kumo cloud. It is also known as the leading span B. While Span A is very reactive to the trend the leading span be is slow to react. In a bearish trend the leading span B is above the kumo.

To demonstrate the lines I am using one of the above charts

Chart: ETH/USDT

Time frame: 4 hours

2)

What is the relationship between this cloud and the price movement? And how do you determine resistance and support levels using Kumo? (Screenshot required)
source

The cloud of the indicator and the price movement of an asset are closely related. 

It demonstrates the price by:

• Movement of the cloud uptrending or down trending

• Thickness of the cloud

• Position of the lines

When the price of an asset is on the rise the Senkou Span A comes above the Senkou Span B to form an uptrending cloud. The cloud will also rise above amidst the uptrending market direction.

The other pattern is when the Senkou span A is below that of B. It indicates the downward trend and the cloud also moves downward along with the price change.

The third relation between the price and cloud is with its thickness. If the cloud is thick in an upward trend it acts a strong resistance and the price does not penetrate through it. The same happens in the downward trend where it acts as a strong support.

This is a down trending thick kumo cloud. It passed the twist.

And If the kumo cloud is thin, it indicates the weak support and resistance areas in the market.  The cloud usually decreases in thickness near a twist and hence indicates a reversal.

Chart: ETH/USDT

Time frame: 1 day

The thin kumo cloud near the twist is also an indication of the trend reversal and the price penetrates through it as the support and resistance levels are very weak.

Support and resistance levels 

The leading span lines A and B act as lines of support and resistance depending upon the market trends. Leading span A can act as resistance and support both and the same is the case with the leading span line B. When the cloud is thick they act as strong support and resistance and the price respects them when it enters the cloud.

In the chart above we can see when the cloud was thick the price entered the cloud and respected both the leading span B which is acting as a resistance here  and the leading span A which is acting as a support here. The price moved out when the support and resistance grew weak prior to the twist when the cloud started to shrink.

3)

How and why is the twist formed? And once we've "seen" the twist, how do we use it in our trading? (Screenshot required)
source

As in normal language, twist means when one thing crosses or moves over the other and changes direction. Similarly when the leading span lines change direction in the market it is called a twist. In other words, a Twist in the Ichimoku kumo cloud is formed when Senkou span line A crosses Senkou span line B. The twist indicates in the change of trend

In the following ways

• From uptrend to downtrend
• From uptrend to neutral 
• From downtrend to uptrend
• From downtrend to neutral
• From neutral to uptrend 
• From neutral to downtrend

We already discussed in detail how an uptrend or downtrend or the neutral trend is formed. When the leading span B crosses and moves above the A it results in a bearish trend and when the leading span A crosses over the B line it results in a bullish trend.

Twist for a Bearish trend 

Twist for a bullish trend

When Span line B crosses Span line A several times but continues to move at the same level we have a neutral trend.

Happenings in the cloud:

• During the twist the cloud shrinks and becomes thin

• The price breaks the clouds and moves above or below it

• These breakouts can help trader make small profits b placing buying bids when the price is at lower point in the cloud and sell when it is at higher point

For example, I explained the below chart to indicate buying and selling points for inside the cloud.

4)

What is the Ichimoku trend confirmation strategy with the cloud (Kumo)? And what are the signals that detect a trend reversal? (Screenshot required)
source

We can confirm the trend with the help of a cloud in the following  ways

By looking at its lines:

It is the most obvious way a cloud that has a leading span line Above it indicates the up trend. With the leading span line B as the roof of the cloud the trend will be bearish. But due to neutral trend which may exist when B crosses above the A lien several times we need other validations to decide the right trend.

By looking at its color:

The other less dependent confirmation strategy is looking at the color. The cloud is usually red for down trend and green for up trend.

By looking at its direction of movement:

The color alone cannot be used to confirm the trend. The most obvious strategy for the validation of a trend with the help of a cloud is its direction of movement. If it's rising the trend will be bullish, if it is falling down it is bearish, and if it is flat the trend is neutral.

Signals to detect a trend reversal:

A trend reversal can be indicated by the following signals

Thickness of the cloud:

As explained above the thickness of the cloud decreases as the trend reversal nears. 

This is the same screen shot I shared above here I am using for the demonstration of thinning of cloud thickness prior to reversal.

Movement of the leading span lines:

during a trend reversal the SSA and SSB crosses over each other when the trend reverses from bearish to bullish SSA crosses over SSB and the opposite happens during the bullish to bearish reversal. This is termed as the twisting of the lines.  In the above chart you can also observe the crossing of lines before a reversal.

A price line breaking through the cloud:

when the price nears a reversal the support and resistance lines of the clouds become weak and the price line breaks through it. In the chart above the price line breaks the green cloud prior to trend reversal.

5)

Explain the trading strategy using the cloud and the chikou span together. (Screenshot required)
source

The Chikou span line is a line that lags and moves 26 periods backward from current closing price. In this question I will be combining the chikou span line and the cloud to explain the trading strategy.

The uptrend:

For an uptrend Chikou span line moves above the cloud and the price line.

The downtrend:

For the downtrend the chikou span line crosses the cloud and price line and moves below it.

Clear bullish or buying signal

When the chikou line breaks the price line and the price line breaks the cloud to move above it is a clear buying signal as the market is showing a strong bullish trend.

Chart: ETH/USDT

Time frame: 4 hours

Clear sell signal

When the chikou line breaks the price line and the price line breaks the cloud to move below it the market shows a strong bearish trend and hence it is a good time to sell the asset and re-buy at a lower price.

6)

Explain the use of the Ichimoku indicator for the scalping trading strategy. (Screenshot required)
source

Scalping is a strategy used by traders to make small profits trading at small time frames of 5 , 10 , and 15 minutes.  In this question we will apply the Ichimoku indicator on small time frames.

For an uptrend the following conditions should be fulfilled:

• Chikou span line breaks the kumo cloud and moves upward. It moves in the same direction as the kumo cloud.

• Price line should break the cloud and move in the same direction breaking the cloud as resistance.

• When the Tenkan-sen line is above Kijun-sen line it indicates a clear bullish trend

• Kumo cloud move in the upward direction

The following conditions should meet for a downward trend:

• Chikou span line breaks the kumo cloud and moves downward.

• Price line should break the cloud and move in the same downward direction breaking the cloud as support.

• When the Tenkan-sen line is below the Kijun-sen line it indicates a clear bearish trend

• Kumo cloud move in the downward direction 

Conclusion

The Ichimoku indicator is a very effective and helpful indicator in understanding the direction of the market both in long and short time frames. It helps us identify the right support and resistance levels and place the right buying and selling signals to earn small as well as large profits. I will surely use this strategy for trading.