Predict Trend with Ichimoku Cloud and Supertrend by Suresh J

Disclaimer:

I’m not expert in reading the Ichimoku Cloud or Supertrend but I’m presenting here my experience in predicting the trend of a stock using Ichimoku Cloud and Supertrend.

Ichimoku Cloud

Ichimoku Cloud is an Indicator which helps in identifying the Support, Resistance, Trend direction and provide trade signals as well.
You can learn more about Ichimoku Cloud in the following websites:
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:ichimoku_cloud
http://traderhq.com/trading-indicators/ichimoku-cloud-trading-strategy-explained/

Supetrend
Supertrend is trend following indicator plotted on the price and gives the trend signal when the price crosses its line. I’m using three Supertrend method explained in the following youtube video. https://www.youtube.com/watch?v=qMuWo9nvK_w

Setup
I use Zerodha and all the screenshots taken from Zerodha Kite.

• Ichimoku Cloud use default setup (9, 26, 52, 26)
• Supertrend 1 – (7,3)
• Supertrend 2 – (10, 3)
• Supertrend 3 – (11, 2)
• RSI (Period – 2, Overbought – 90 and Oversold -10)
• CCI (Commodity Channel Index) – (Period – 14)
• Pivot Points (Fibonacci)

RSI and CCI is for additional confirmation. 

Indicators:
- In Ichimoku Cloud indicator , if the conversion line shows down trend and crossing below the base line will show the stock bearish and vice versa.
- Advantage of Ichimoku Cloud is to show the future trend as well for 26 periods of the chart plotted.
- Supertrend will shows the signal if the price crosses the line and it will act as Support and Resistance as well in our setup.
- RSI(2), if it crossed above 90 and moving down then it’s bearish and vice versa.
- CCI (14)  - If it moving above -100 and moving towards 100 then it’s bullish and vice versa.

Predicting Trend

I would suggest to look Ichimoku Cloud for 15 minutes and confirm with 5 minutes and 30 minutes. Sometimes good to check with 1 Day time period as well.

Let’s take the example of BATA INDIA call I have given on 15th Dec 2017.

15 Mins Chart – Call given at market Area

5 Mins Chart

30 Mins Chart

5 mins Chart –
• It has formed Doji Candle at 9.45AM
• RSI is in overbought level
• Price already touched day’s high and it was decreasing
• CCI shows downtrend
• It’s above the Pivot Resistance level
• Supertrend Line will be it’s next support followed by cloud Line
• Since it’s already formed Doji followed by Bearish Engulfiing pattern, above the resistance line (just crossed), RSI and CCI shows downtrend I have given sell call. Target as Supertrend Support and Cloud line.

15 mins Chart 
• Almost same as 5 Min chart and in addition it shows dip in the cloud line where it takes the support.
• Conversion line also was showing as to turn below.

30 Mins Chart
• In this chart it’s clear red cloud and the price was just above the cloud due to gap up opening.
• It formed hanging man pattern and next candle started Bearing Engulfing pattern.
• Here the cloud line may act as support.

Considering all the above charts Given the entry point as 733 which is nearly the day’s high and target as the support line.

Things to be considered:
• As many trading experts stressing none of the indicators are 100% accurate.
• Don’t try to catch the falling knife. For example, in the above charts, you should not try to short when it’s going high like at 729 or 730. Allow time to get it settle down and taking a reversal where it has done after reaching 733.
• Always do the trade when there is clear signal for trading and don’t urge to trade everytime.
• Last but not least – don’t simply follow someone  - as things may works for them but not for you. So do paper trading by observing the trend and start entering into market once you have the confidence.

Happy Trading 😊