1 - Put your understanding into words about the RSI+ichimoku strategy
Trading using technical analysis involves two things; Measuring market sentiment and establishing a trend. over the years a lot of indicators have been developed to be used for technical analysis, however, a vast majority always seem to either measure market sentiment or market direction, or components of the two, but never the two. This dilemma made traders build systems that involved the incorporation of two or more indicators. The Ichimoku Kinko Kyo + RSI strategy is one of these.
This trading strategy involves using the Ichimoku Kinko Hyo indicator, which measures the market direction and trend strength, with the RSI which measures the momentum, indicating an overbuy/oversell on a particular commodity. This strategy simply waits till the price cuts across the Kumo cloud as support or resistance then anticipates a signal of an overbuy or oversell from the RSI confirming the trend. If these two conditions are met, a trading position can be taken.
From the image above we can identify the RSI crossing 70, and while this happened, the price broke the Ichimoku support and started trading below, signaling a sell.
2 - Explain the flaws of RSI and Ichimoku cloud when worked individually
Like I said before, indicators on their own are usually incomplete and have gaps, creating the need for systems that include two or more indicators. That same way, the Ichimoku Kinko Hyo and the Relative Strength Index have their faults and will be discussed below.
Limitations of Ichimoku
- The Ichimoku is a lagging indicator, this means you can be catching the trend late if you depend on it alone.
- This indicator doesn't measure momentum
- The Ichimoku is dependent on previous information which may not correlate to current market sentiment.
Limitations of RSI
- The RSI does not indicate trend direction.
- Cannot be used alone with a high success rate as it tends to produce false alerts
- Only useful when momentum and volume is high
- Utterly useless in a very strong trend, better used for a sideways channel.
- Provides information on momentum but leaves out the volume.
- No entry or exit strategies.
3 - Explain trend identification by using this strategy (screenshots are required)
Identifying a trend can be done with just the Ichimoku, however, trend confirmation is a different ball game. I'll be showing us how to identify and confirm a trend with the Ichimoku + RSI strategy.
Trend Identification on the Ichimoku + RSI strategy is done in two steps;
1. Spotting The Trend Reversal (Ichimoku)
The Ichimoku Kumo cloud in this strategy is used as a support or resistance to price, and when broken signifies a change in the trend. If the Kumo was serving as a support to price, and price breaks it, we can assume the uptrend is reversing to a downtrend, and if it acts as resistance when price breaks it, we assume the downtrend is reversing to an uptrend. However, false signals exist, so the next step is vital.
suspected uptrend Source
suspected downtrend Source
2. Confirming Trend Through Shift In Momentum
When the reversal is spotted, we wait for confirmation from the RSI. If there is a spike above 70 in buying momentum, the uptrend is confirmed. If support was broken, a spike in bearish momentum, below 30 confirms the downtrend.
confirmed uptrend Source
confirmed downtrend Source
4 - Explain the usage of MA with this strategy and what lengths can be good regarding this strategy (screenshots required)
Remember when I said 2 or more indicators are used to form a trading strategy/system? Well, the party is not over yet. Imagine adding a moving average (preferably simple or exponential) to the mix to have an extra confirmation on trend direction?
No need to imagine sir/madam. It has already been done. Let's show what it resulted to.
I set my simple moving average up with a blue line and a period of 200. On the chart, I realized that the high period of the SMA filtered the noise from the Ichimoku, and helped to confirm the real trend changes. This of course was completely confirmed by the RSI.
As we can see from the image above, the price cut below the Kumo to suggesting a downtrend. Next, it cut across the 200 MA too, and while these happened, the RSI went below 30 to confirm the bearish momentum and we established the existence of an emerging downtrend.
5 - Explain support and resistance with this strategy (screenshots required)
We all know what liquidity zones are, they are price levels that when the price gets to, have a significant impact on price liquidity. These stones either serve as support or resistance. Luckily for us, the Ichimoku cloud is very good at forming both support and resistance where and when needed, if the market is in a defined trend. But what if the market isn't in a defined trend? That's where the RSI comes in.
Ichimoku as Support
The cloud as we can see above serves as support and propels price upwards. This shows how the Ichimoku cloud monitors liquidity as support when the market is in an uptrend. When this support is broken, we can see a resultant downtrend.
Ichimoku as Resistance
From the image above, we see the Ichimoku serving as resistance in a downtrend. After multiple tests and a fakeout, we can see a break, resulting in an uptrend.
RSI as Support and Resistance
From what we can see, the market entered a sideways trend which is a really bad time to use the Ichimoku, however, the RSI came up clutch.
- Selling climax reached, price propels to the top to test the resistance for the first time, RSI reads high.
- Price bounces off resistance and comes back down to test support, RSI marks this by coming close to 30
- Price bounces off support to retest that resistance at point 3, RSI indicates this by reading above 70
- The price bounces off resistance once again and begins to sell.
As we can see, the RSI is instrumental in the identification of support and resistance in a sideways channel.
6 - In your opinion, can this strategy be a good strategy for intraday traders?
The RSI, MA, and Ichimoku are all useable across multiple time frames. I tested it out for scalping and had immense results.
From the screenshot above we can see that the trades I took yesterday grew my demo account by over a whopping 35%. Starting from 90,000. These were scalp trades and were successful.
I think the results are enough to know my position o this. The strategy is very applicable for intraday trading as much as it works for swing trading.
7 - Open two demo trades, one of buying and another one of selling, by using this strategy
Using the leading strand of the Ichimoku as a reference, as soon as it was broken and the RSI indicated buying momentum, I placed a buy.
Because I used a buy stop to catch this I was not able to make the screenshot early, but when I came we already almost hit TP.
|Risk to reward||1:2|
Using the leading strand again, It was broken. I waited for an indication of selling pressure from the RSI, as soon as I got one, the trade was opened.
Because I used a sell stop to catch this I was not able to make the screenshot early, but when I came we it was halfway to tp. we hit tp later on. I was not around to take the screenshot too.
|Risk to reward||1:2.5|
This is a good strategy for measuring trend direction and momentum. It doesn't create so much room for trading entries, however, if one wants to measure a market he wishes to invest in, this is a really good strategy to analyze.
Big thanks to @abdu.navi03 for this lecture, it is always a pleasure to learn something new. I look forward to your next lecture