Precourse
Module 1 – How to Track Price Action on Ichimoku Charts
Module 2 – Finding Support and Resistance
Module 3 – Reading the Charts
Postcourse

Using the 200-Period Simple Moving Average for Clues

When we looking at the daily and weekly charts, the 200-period simple moving average can re-enforce support and resistance areas. Sometimes it will provide support and resistance in areas not highlighted by an Ichimoku line.
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The focus of this course is Ichimoku. However, there are hundreds of other technical analysis indicators. 

One problem seen frequently with new traders is using too many indicators which can become confusing and create analysis paralysis, a situation where you are not sure what to focus on. 

If you do find yourself using many indicators, make sure you understand what they are for because many are similar making it counterproductive to use them all. For instance, RSI, ROC, MACD, CCI, Stochastics, and Williams %R are all momentum indicators. 

As a side note, Ichimoku can also be used as a momentum indicator. Momentum is indicated on Ichimoku when it has a widening future Cloud, long-lasting channels between the Tenkan-sen Kijun-sen, the amount of angle of the Tenkan-sen/Kijun-sen, and a free and clear Chikou Span. 

If I had to choose an oscillator-style momentum indicator to use with Ichimoku, it would be the RSI (relative strength index).

That being said, I do use two other indicators with the Ichimoku. 

1. 200-Period Simple Moving Average
2. Fibonacci Retracements

The 200-period moving average could be the most used indicator of them all. Because other traders might also be closely watching, it’s nice to know if the current price is above or below the line. 

“The 200-day moving average is widely used by forex traders because it is seen as a good indicator of the long term trend in the forex market. If price is consistently trading above the 200-day moving average, this can be viewed as an upward trending market. Markets consistently trading below the 200-day moving average are seen to be in a downtrend.”
Richard Snow. July 29, 2019. 200 Day Moving Average: What it is and How it Works. DailyFX.com.

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Side Quest: 200 Day Moving Average: What it is and How it Works
Richard Snow. July 29, 2019. 200 Day Moving Average: What it is and How it Works. DailyFX.com.
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Ichimoku Weather Analogy

I like to say that market action or price is like a hot air balloon with the buyers turning up the heat making the balloon go up and sellers turning down the heat making the balloon go down. I consider the 200-period simple moving average to be the chase vehicle for the balloon. It’s always trying to catch up to price.

From a bullish perspective, it’s always good when the balloon is above its chase vehicle.

I color the 200 moving average black on my charts. That makes it look like a road the chase vehicle drives on.

I also use a “simple” moving average rather than adaptive, exponential, triangular, or weighted.

On these charts for AT&T, we can see the daily 200 sma is in a nice upswing while the weekly is flat. The current price is fluctuating around both. The future will show if the 200 sma provides support.


On these charts, notice the red arrow showing price action moving above the moving average on both the daily and weekly. The daily ma is flat and the weekly is angled up.

The most current action shows the price trying to find support at both moving averages. If the price stays below a little longer, the 200 will become resistance above.


In this residential construction stock, the daily sma is bullish because price is above it, while the weekly is bearish because price is below. The vertical line shows the price moving above the sma on the daily at the same time price moved above both the Tenkan-sen and Kijun-sen on the weekly. A bullish signal on both charts.


RealNetworks has been struggling fundamentally and these charts reflect that. Here we have two downward sloping simple moving averages. The weekly Cloud moving further away from the line is not a good sign.


Visa shows the opposite direction of the simple moving average than RealNetworks. Visa has a solid green weekly Cloud with the sma a good distance away. Its daily just bounced off the daily sma. This will be fun to watch to see how long it stays below the Cloud (resistance) and above the 200 sma (support). On the weekly, we’ll see if the Tenkan-sen moves below the Kijun-sen and see if the Cloud provides support from below. Both the Tenkan-sen and Kijun-sen are resistance above.

From these examples, you can see that the daily or weekly 200 sma can provide support/resistance information in areas where the Ichimoku is not at. 

 

The charting platform used for this analysis is provided by Charles Schwab and is called TOS or ThinkorSwim.