Crypto Trading Strategies: Ichimoku and RSI

Trading in the volatile world of cryptocurrency necessitates a structured approach and well-planned strategy. Since cryptocurrencies typically have a low correlation to economic fundamental data and other markets, technical analysis and crypto-specific news remain the main drivers for analyzing cryptos.

Most analysts would agree that there is no “perfect” trading strategy. However, there are many methods that are well suited to those interested in trading cryptocurrencies. You simply need to pick out the strategy best suited for the market direction and your trading style.

Today we will be covering crypto trading strategy based on the combination of the relative strength index (RSI) indicator and the Ichimoku indicator.

Understanding the Ichimoku indicator

The Ichimoku Kinko Hyo, or Ichimoku for short, is a technical analysis method that was created by Japanese journalist Goichi Hosoda in the late 1960s. The Ichimoku chart has been designed to help traders learn everything about a crypto’s trend, including its momentum, direction, support and resistance levels, and even trade signals.

The Ichimoku charts consist of five lines called the Tenkan-sen (Conversion Line), Kijun-sen (Base Line), Senkou span A (​Leading Span A), Senkou span B (​Leading Span B), and Chikou span (​Lagging Span). Each of the lines provides important information about the price movement. The area between two of the lines, Senkou Span lines, A and B, is filled in with color, which creates a cloud-like view.

Ichimoku Indicator – Components

Trading using Ichumoku indicator

  • When TenkanSen and KijunSen are above the Cloud, the trend is said to be positive.
  • When TenkanSen and KijunSen are below the Cloud, the trend is said to be negative.
  • When prices are above the cloud, the trend is said to be up. When prices are below the cloud, the trend is said to be down.
  • When Sendou A is rising and above Senkou B, the uptrend is said to be strengthening. In this case, the space between the lines is usually colored green.
  • When Senkou A is falling and below Senkou B, the downtrend is said to be strengthening. In this case, the space between the two lines is usually colored red.

Understanding RSI indicator

RSI is short for the Relative Strength Index. RSI is a momentum indicator that measures the speed and change of price movements and can be used to identify trend reversal.

The RSI is calculated using average price gains and losses over a given period of time. The default look-back period for RSI is 14.

RSI Indicator

RSI value oscillates between 0 and 100. When the RSI value is above 70, it is considered as overbought, and when RSI is below 30, it is considered as oversold. Some traders prefer to use 75/25 or even 80/20 to define overbought and oversold levels.

Crypto trading strategy based on Ichimoku indicator and RSI

Today’s crypto trading strategy focuses on using the RSI indicator in conjunction with the Ichimoku indicator for accurate entry and exit.

Buying Rules

A buy signal is generated when the Tenkan Sen (blue line) crosses above the Kijun Sen (red line) and the Tenkan Sen, Kijun Sen, and price are all above the lower edge of the cloud (Cloud consists of span B and span A line), while the RSI is above 30 and moving higher. Traders typically exit the trade once the Chikou span (green color line) crosses below the upper edge of the cloud.

Buy Criteria – Ichimoku and RSI

As you can see from the chart of BTCUSD, the crypto started moving higher once the buy criteria were fulfilled.

Selling Rules

A sell signal is generated when the Tenkan Sen (blue line) crosses below the Kijun Sen (red line) and the Tenkan Sen, Kijun Sen, and price are all below the upper edge of the cloud (Cloud consists of span B and span A line), while the RSI is below 70 and moving lower. Traders typically exit the trade once the Chikou span (green color line) crosses above the lower edge of the cloud.

Sell Criteria – Ichimoku and RSI

As you can see from the chart of ETHUSD, the crypto started moving lower once the sell criteria were fulfilled.

As you can see, using the Ichimoku indicator in conjunction with the RSI indicator can help you trade cryptos better. Using the two indicators in tandem can help avoid false signals and create profitable trading.

Happy trading!

— Trades of the Day Research Team

Could This Stock Be the Best EV Play of 2022? [sponsor]
You're not going to want to buy a single EV stock before you watch this... Louis Navellier - the analyst who found Microsoft at 38 cents - just named a top EV company to watch in 2022. And it's not Tesla. Click here to watch.