In Course 02 – Learn Ichimoku, we learned the purpose of technical analysis is to help us understand price action. It’s important to read the price movement first. Understanding candlesticks can help us know what is currently happening with the most recent price action.
Delving deep into Candlesticks is outside the scope of this course. However, if you are not familiar with them you can take a Side Quest to learn more.
Throughout this course, you have the choice to take Side Quests.
Side Quests are optional learning opportunities that are relevant to the presented material but outside the scope of the training. Side Quests will be shown again at the end of modules if you want to wait until then to explore.
You don’t need to be an expert in using candlesticks. Overanalyzing can create analysis paralysis. Keep it simple and start by just learning the basic patterns.
Candles provide day-to-day sentiment. Start by looking at the most recent price action candlestick. Is it big or small? Is it above or below the last candle? Is it part of a group of candles creating a simple pattern?
Watch for candlestick reversal patterns near Ichimoku lines.
Watch for instability in the candlesticks.
Price to Everything
We start by looking at the most recent price action.
Is it going up?
Is it going down?
Is it in a consolidation range?
See if there is a candlestick pattern.
Then look at the Cloud.
The Kumo Cloud
Looking at the Cloud, is the current price action above, inside, or below?
Is it touching or bouncing off one of the Senkou Spans?
When was the last time it touched or bounced?
What happened the last time the price passed through the Cloud?
Was it a thick or thin Cloud?
Did it pass through quickly or did it get caught inside for some time?
Did the price have a hard time exiting the Cloud?
Once it exited did it take off or did it hug a Senkou Span?
Is the current price above, below, or touching the Kijun-sen?
When was the last time it touched or bounced off the Kijun-sen?
How often does it touch and break through?
How often does it touch and not break through?
Recently, does the price tend to stay above or below?
How long does price action tend to run above or below before turning?
Can you see a correlation between price and the Kijun-sen for when the Kijun-sen is above,
inside, or below the Cloud?
We can ask the same questions as the Kijun-sen when looking at recent price action and the Tenkan-sen. Also, see if you can find a pattern for price action to Tenkan-sen when the Tenkan-sen is below or above the Kijun-sen. Is there a pattern for how price reacts to the Tenkan-sen depending on if the Tenkan-sen is above, inside, or below the Cloud?
This is not to say that any pattern will repeat itself. These are observations to help understand how price action tends to move on this particular tradable issue.
To observe the current price action to the Chikou Span we have to see how the Chikou Span reacts to 26-period old price action.
What happened the last time the Chikou Span moved up and touched the old market action?
What happened the last time Chikou Span moved down and touched old market action?
Does it get stuck? Does it break through easily? Does it bounce off and reverse?
Watching, reading, and understanding how price action interacts with the Ichimoku system helps you understand price action itself. Price action is what creates the Ichimoku system and Ichimoku’s purpose is to expose the patterns within the price action. All to help you make buying and selling decisions.