Lessons on Ishimoku: Interaction with Channels and Elliott Waves

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Very often, receiving signals from Ishimoku indicatorIn this case, the price suddenly hits an invisible wall and makes a U-turn before it reaches the target. The reason for this is the support and resistance levels, which are often referred to as "natural".

And to understand this point and be ready for such a development of events, we need to include in the technical analysis its elements such as wave and channel analysis.

Wave analysis, based on Elliott Waves, is a rather voluminous and time-consuming teaching. You can learn more about it in the "Elliott Wave Phenomenon" section. In my practice, it is enough for me to have an idea of a reversal model of waves. Look at Figure 1 and remember these models. The tops and bottoms of the waves create natural resistance levels and support, the breakage of which in the direction of the main trend, allows us to talk about the continuation of the trend.

However, when the wave models drawn in this figure arise, it is possible to talk about a change in the trend and be ready for it. The main condition under which you can begin to talk about getting a signal of a change in the trend in the wave analysis is a change in the relative positions of the High and Low of the subsequent waves.

Figure 2 shows such an episode bearish reversalIn this case the strong bullish signals turned out to be false, and they were repeated twice. We got strong bullish signals from the Chinkou Span (positions C1 and C2) - the price chart breakout from the bottom to the top in a bullish zone, while the price was above the clouds (positions 4 and 6). But if you look closely at the price chart movement, you'll see that before that the waves were signaling a change in the bullish trend - The bottom of the wave preceding the rise in price (3), is below the bottom of the previous wave (1), so this fact should alert us and not hope for a significant working out of the received signal. As well as not to hope for its manifestation. Well, by getting the signal C2, we are already talking about a bearish trend, and since the bottom of wave (5) is below the previous bottom (3), it would be useless to hope for its return. These very bottoms and tops of the waves, which probably everyone, even a beginning trader, knows, make up the resistance and supportThe break or rebound from which is itself also a signal to determine trends in the market.

Fig. 3 shows the moment of bullish reversal, when the strong signal from the Chinkou Span (C1) - the rebound of the price in the bearish zone and the bounce of the price from the cloud down (3) should have guaranteed at least twice the downward price movement than it actually happened. After analyzing the price chart, we see that at the moment of the break-up of the cloud (3) the price was higher than the High of the previous wave (1), which gives a signal of change in the bearish trend. We should not expect to see a signal from the Ishimoku indicator working out in this case, because it essentially was just a correction to a bullish wave in an emerging uptrend - the price did not get to the support line (3), stopped at the point 4 and turned and went up.

Fig. 3. Elliott Waves in practice. Continued.

In this case we often face the problem of which wave to choose in order to determine its High and Low. And here again the Ishimoku indicator comes to our aid. Look at the Chinkow Span, it will show you when there was a wave and when there wasn't.

The same happens when the price is in close proximity to the borders of the trend channel. A clear example of this is the behavior of the British pound in the last few months. Figure 4 clearly shows the strength of the trend lines, when the strong bearish signals (C1, C2, C3) on the H4 chart did not work out on 30%. The price was constantly bumping into the bottom trend support of the bearish channel plotted on the Daily chart, and was bouncing off it (pos.1, 2, 3).

It should be noted that the correctness of the construction of these trend lines, as well as horizontal resistance and support levels, play an essential role. Traders often debate how to draw these lines. Some insist on doing it by maximum and minimum, while I insist on They must be carried out using the opening and closing prices of the candles.

That's all for today. The next lesson in ForTrader.org will be devoted to generalizing and consolidating our knowledge.

Lessons on Ishimoku: Interaction with Channels and Elliott Waves

Other articles of the master class "Lessons on Ishimoku"

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