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Whale Trading

Ichimoku Trend Following: Dynamic Support/Resistance Strategy Using Clouds

In this article, we cover an Ichimoku-based Trend Following Strategy.

We assume you have already seen in Ichimoku:

  • Tenkan-sen (Conversion Line)
  • Kijun-sen (Base Line)
  • Senkou Span A/B and Kumo (Cloud)
  • (Optionally) Chikou Span (Lagging Span)

We assume you have seen the basic structure.

Here, we go a step further and design a strategy structure with the perspective:

Beyond just "Buy because it's above the cloud, Sell because it's below", "What dynamic support/resistance and swing structure do these Clouds, Base Line, and Conversion Line summarize within this trend?"

The diagram below shows:

  • Top: In a Daily Uptrend, price moves above the Ichimoku Cloud, with the Cloud top and Base Line acting as dynamic support.
  • Bottom: In the 4-Hour Chart of the same section, attempting trend-following entries at every pullback inside/near the top of the Cloud.

In one view.

1. How to Use Ichimoku in This Strategy?

Traditional Ichimoku textbooks often cover:

  • Various types of Crossover Signals,
  • Chikou Span position,
  • Even Time Theory and Wave Theory

All at once.

In this article, we intentionally simplify and use Ichimoku only as a tool to see:

  1. Trend Filter

    • Relative position of price and Cloud
    • Color/Slope of the Cloud

  2. Dynamic Support/Resistance

    • Cloud Top/Bottom
    • Position of Base Line/Conversion Line

  3. Swing Pullback Entry Zone

    • The section where a pullback in the trend direction stops near the Cloud/Base Line

In summary, We use it as a framework that summarizes 'Direction + Zone', and minimize flashy detailed signals.

2. Settings and Timeframe: 9–26–52, and Daily + 4-Hour Combination

The basic setting for Ichimoku is:

  • Conversion Line: 9
  • Base Line: 26
  • Leading Span B: 52

Crypto is a 24-hour market, so the candle structure is different from the 9–26–52 derived from Japanese spot stocks, but the basic setting is still widely used as is.

In this strategy as well, we will base it on the combination:

  • Daily Ichimoku → Large Trend/Cloud Structure Filter
  • 4-Hour Ichimoku → Pullback Entry Timing

You can use other cycles (e.g., 4-Hour/1-Hour, 1-Hour/15-Min), but it is important to always maintain the role division:

  • Higher Timeframe: Direction + Cloud Structure
  • Lower Timeframe: Pullback + Pattern + Risk Management

3. Defining "Direction and Environment" with Daily Cloud

First, we decide the Environment with Daily Ichimoku.

Example perspective:

  1. Strong Uptrend Environment (Long Bias)

    • Price is located above the Cloud
    • Cloud is thick and pointing upwards (rising slope)
    • Base Line rises gently and price repeatedly finds support above/near the Base Line

  2. Strong Downtrend Environment (Short Bias)

    • Price is located below the Cloud
    • Cloud points downwards and forms widely
    • While Base Line is falling, rebounds are blocked at the Base Line/Cloud Bottom

  3. Neutral/Complex Environment (Wait and See or Other Strategies)

    • Price goes back and forth inside the Cloud
    • Cloud is thin or twists frequently
    • Base Line is almost horizontal or vibrates briefly up and down

In this strategy, we branch into:

  • Case 1: Trend Following (Long/Short) Strategy Mode
  • Case 2: Mode to avoid counter-trend chasing and aim only for the trend side
  • Case 3: Mean Reversion Strategy family or Wait and See

4. Catching Pullback Entry Timing with 4-Hour Cloud/Base Line

Uptrend Example (Long Basis):

  1. Premise that Daily Ichimoku is in Uptrend Environment

    • Price above Cloud
    • Cloud thick and rising slope
    • Base Line playing a clear support role

  2. Price Enters Correction Wave on 4-Hour Basis

  3. At this time, in 4-Hour:

    • Price pulls back to Cloud Top or Base Line
    • Cloud still has rising slope or is horizontal
    • Decline stops near the Top/Center rather than digging deep inside the Cloud

  4. Simultaneously:

    • Based on Support & Resistance Basics, the zone where the previous swing high turns into support,
    • Based on Candle Patterns, rebound patterns like long lower shadow, inside bar, engulfing,
    • Based on ATR, Stop-Loss/Target distance is within account risk tolerance

We view the point where these overlap as a Long Entry Candidate Zone.

In a Downtrend:

  • Apply inversely by viewing the section where price rebounds to Cloud Bottom/Base Line on 4-Hour and is pushed back again,
  • And the section where Upper Cloud/Base Line acts as Dynamic Resistance,
  • As a Short Entry Candidate.

5. Common Pitfalls in Ichimoku

Since Ichimoku is visually intuitive, there are also many pitfalls of overconfidence.

Let's summarize a few representative ones.

5-1. Illusion of Thin Cloud and "Easy Breakout"

  • In sections where the Cloud becomes very thin, price can frequently pierce through the Cloud up and down.
  • If you assume "Cloud Breakout = Major Trend Reversal" at this time, it is easy to get caught in frequent fake signals.

→ In thin Cloud sections:

5-2. "Noise Zone" Inside the Cloud

  • The section where price moves only inside the Cloud is structurally close to an "Uncertain Area".
  • If you try to force the use of the inner top/bottom of the Cloud as support/resistance at this time, Stops can be frequently hit.

→ In this strategy, in principle:

  • Trend Following Entry is recommended as "Long above/near top of Cloud if Uptrend", "Short below/near bottom of Cloud if Downtrend"
  • Trading inside the Cloud is recommended to be allowed only very limitedly.

5-3. Overfitting Chikou Span (Lagging Span)

Lagging Span is a tool that shows the relative position with past prices, but we do not use it as an essential element in this article.

  • You can already read the trend and dynamic support/resistance structure sufficiently with just Price, Cloud, Base Line, and Conversion Line.
  • Use Lagging Span selectively only as an additional filter, and it is better to avoid certainty like "Because Lagging Span was like this, it must happen like this".

6. Pros and Cons of Ichimoku Trend Following Strategy

6-1. Pros

  • Thanks to the Cloud, you can see the visual Trend/Support/Resistance Frame at once.
  • It has a stronger "Zone" perspective than 60-Day Line Trend Following, so it can be advantageous for catching pullback entry zones.
  • Fits well with Multi-Timeframe structure (Daily Cloud Structure + 4-Hour Pullback Entry).

6-2. Cons/Cautions

  • In sideways/low volatility markets, the Cloud becomes thin and signals easily get twisted.
  • If you use too many elements (Conversion Line, Base Line, Cloud, Lagging Span) all at once, it becomes easy to become ambiguous about "on what basis did I enter".
  • From the perspective of Risk Management, if Stop-Loss/Target/Position Size rules are not clearly defined separately, it is difficult to manage risk with Ichimoku alone.

7. Checklist When Actually Using This Strategy

Before applying the Ichimoku-based Trend Following Strategy in practice, we recommend answering at least the questions below.

  1. Which timeframe combination will I use?

    • Daily + 4-Hour, or 4-Hour + 1-Hour, etc.
    • Is it a combination that fits my lifestyle and holding period?

  2. How will I distinguish "Trend Environment vs Box Environment"?

    • Cloud thickness/slope,
    • Price position above/below/inside Cloud,
    • Have I set my own criteria with ADX or Swing vs Correction structure, etc.?

  3. How will I structurally define Entry/Stop-Loss/Take-Profit?

    • Example: Do I have specific rules like "Rebound Candle + ATR 1~1.5x Stop + R/R at least 2 or more at Daily Uptrend + 4-Hour Cloud Top/Base Line vicinity"?

  4. How will I divide roles with other Trend Following Strategies?

Ichimoku is less of a "Secret Signal Set" and more of:

"A framework that visually shows Trend + Support/Resistance + Swing Zone at once"

As summarized in this article:

  • If you organize Environment and Direction first with Higher Timeframe Clouds,
  • And concretize Pullback Entry and Risk Management using Lower Timeframe Cloud/Base Line/Patterns,

It can establish itself as a practical strategy axis that can be sufficiently combined with other trend-following strategies.