Elliott Wave & Ichimoku Clouds

by | Jul 19, 2020

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

Traders like to plan their strategy and have a market overview of what’s going on before placing any orders in the crypto market. The trader will use the technical analysis tool Elliott Wave & Ichimoku Clouds to get that market overview. These two TA’s are probably the most sophisticated technical analysis tools; it can be challenging to comprehend initially. Once a trader has mastered the techniques, the benefits will far offset the risks. 

Elliott Wave

The Elliott Wave tool is a technical analysis method that crypto traders use to evaluate market conditions and predict market trends by recognizing extremes in trader’s mindset, highs and lows in prices, and other communal factors. When traders use Elliot Wave, they believe that market conditions are affected by traders’ shared mindset and that the market moves between hopefulness and cynicism in a natural sequence. Elliot Wave plays well into the crypto market because, at this time, the market is being driven by trader’s phycology since there is no actual underlying fundamental backing on why prices rise or fall in the crypto market. 

Now let’s get into the fundamentals of the Elliot Wave

According to Nelson Elliot, a trending market moves in a five-three wave pattern, where the first five waves move in the more significant trend. Once the five waves have completed in one direction, a more substantial corrective move occurs in three consecutive waves. The sequences that were identified by Elliott occur across multiple time frames. This means that once the five-wave series has completed on a small time frame, for example, a 1-hour chart, may signify just the first wave of a more magnificent course unfolding on a 6-hour chart, and so forth. Identifying these patterns can be difficult for any trader, but luckily Elliot left some general rules to help identify the wave pattern: 

  • The first rule, wave number two, will not repeat past the initial point of wave one. Which means that in an upcoming movement, the price after the conclusion of wave two cannot be lesser than the initial price of wave one.
  •  Second rule circumstances are that wave three is usually the lengthiest and never the shortest in length, and it always finishes past the peak of wave one.
  • Lastly, the fourth wave cannot overlap the end of wave one. 

The Elliott wave theory offers a complete outline to comprehend the crypto market behaviour by establishing our opinions about the crypto market. Merging the wave concept with Fibonacci ratios helps crypto traders make better trading decisions, making the Elliott wave analysis an excellent way to provide a framework for analyzing the crypto market. 

Ichimoku Clouds

An Ichimoku Cloud is a technical indicator that outlines support and resistance areas. The “clouds” are created between lengths of moving averages plotted, usually, six months ahead, and the midpoint of the 52-week price high and low. The Ichimoku cloud is a well-known trading indicator, originating from Japan used to trade all kinds of assets. Despite its design in traditional markets, the Ichimoku cloud can offer important trading indicators in the crypto market. 

The Ichimoku cloud mainly contains trend factors; nevertheless, it also measures the crypto asset price momentum. The cloud has four elements that are molded by five different moving averages.

The four factors are:

Elliott Wave & Ichimoku Clouds
Ichimoku Cloud on HyperTrader
  1. Conversion line, which is a short-term moving average. 
  2. Baseline, which is a medium-term moving average.
  3. The lagging span, which is created by plotting the current closing prices twenty-six periods in the past. It is intended to allow crypto traders to imagine the association between current and past trends.
  4. Lastly, the Kumo cloud is defined by two lines, the Span A (and Span B line. The cloud acts as a significant area of support and resistance based on price action.

The Ichimoku Cloud is a good TA indicator for crypto trades to outline support and resistant crypto assets. 

The crypto market will always have its unforeseen market conditions. But the Elliot Wave and Ichimoku Cloud indicators are among the most popular signs that traders use to recognize high probability opportunities to trade in the crypto market.

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Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"
Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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