教育

How to Swing Trade Using the Ichimoku Cloud's Base Line

In this post, I'll be introducing a swing trade technique that I like to use often, that involves the use of the base line (blue line) from the ichimoku cloud indicator, and the 5 simple moving average (SMA), marked in green.

Disclaimer: This is not financial advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk.

Conceptual Explanation
- The base line is a component of the ichimoku cloud that demonstrates price momentum.
- When the candles trade above the base line, it indicates that there is price momentum to the upside, and vice versa for the downside.
- The base line is combining the highest and lowest price over the last 26 period (since this is the hourly chart, 26 hours in this case), and calculating the average value.
- This means, that when the price action lacks momentum, is converges above and below the base line, as demonstrated by the box in orange.
- But when a breakout takes place that deviates upwards significantly, the base line is dragged up towards the new high, as opposed to the price returning back near the baseline.
- In other words, the base line's upward movement indicates that there is strong momentum behind the price action.
- Thus, given that the price doesn't break down below the baseline again, it's safe to assume that the price will continue to rally upwards with momentum.

Application to Trading
- The chart above is the hourly chart I was looking at for a swing trade opportunity on Bitcoin.
- Initially, there was lack of momentum as demonstrated by the box in orange; Bitcoin failed to break significantly above the baseline, and even with small breakouts, it continued to return back to the baseline and 5 SMA.
- It was also trending below a descending trend line resistance, marked by the dotted black line, indicating that a breakout through the resistance trend needed to take place.
- I then saw the price breakout of not only the baseline and 5 SMA, but also the descending trend line resistance.
- As price pulled back to retest the 5 SMA support, the baseline and 5 SMA also formed a golden cross, indicating an opportunity for a long position.
- After entering a long position, I saw the position continue to rally upwards with strong momentum.
- At a certain point, it broke down the 5 SMA, and the base line as well, and the candle closed below the base line, providing bearish confirmation.
- At that point, I closed my long position, and ultimately capitalized on a 9.11% move in 2 days and 19 hours.

Conclusion
The base line can serve as an effective indicator when scalping or swing trading. However, you need to have a clear entry/exit strategy, as well as an understanding of price action backed by momentum. Often times, the most effective trading techniques can end up being the most simple ones.

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