Ichimoku : How I use the Ichimoku chart to short stocks

I had a comment left by John C on whether we can use Ichimoku for short sales.

Do you use the 80/ 20 system on the stochs.? Can the Ichimoku system be used for short sales?

The answer is YES.

Shorting stocks is not specified Ichimoku. We can use other TA indicators to do that as well.

However, I like Ichimoku best simply because it allow me to do so ‘with a glance’ ( hence, the term technical analysis at a glance).

Let’s go through a counter that I am fairly familiar with. PALM (from a chart point of view).

Ichimoku Chart 1 (April 2007)

The first sign of a  bearish outlook is when it gap up on March 20, 2007. This is follow by a very quick gap down 2 days later. (<< Look at thepink highlighted area). If a stock can gap up and gap down in such a short period that is already the first sign of trouble. Also, look at the volume.

However, at that point, we can’t confirm if the uptrend is broken or not. But, I will definitely reduce my stake if I have a long position.

On April 9, we have a confirmation that the uptrend is broken. We can see from the 2 yellow highlighted areas.

– The left shows the Chikou Span (green line) about to cut through the price level.

– The right shows the Tenkan sen cutting through the Kijun sen downwards.

Putting the above 2 together, give us an indication that a bearish trend is on the way. At this point, we will need to monitor the kumo support at 16.40

2007Apr-Palm Inc-800x600_Ichimoku_Short1

Ichimoku Chart 2

By May 7, 2007, PALM’s price has drift further downwards and has break through the kumo support. This is the last support level that I will hold on to for any long position.

2007Apr-Palm Inc-800x600_Ichimoku_Short2

Ichimoku Chart 3

Between the first breakdown in April and Oct, we can see that there is some counter trend rallies, but by end Oct 2007, the stock price break down and PALM’s price sank all the way to about $5 or lower

2007Apr-Palm Inc-800x600_Ichimoku_Short3

So, as can be seen, on the Ichimoky chart, the kumo acts as the ultimate final support level if we are looking for short positions. A Tenkan sen – Kijun sen cross is not sufficient at times as there are still support below; hence the need to view the bearish cross in reference with where the kumo is.

I will be interested to hear from fellow traders and/or investors, how they would have trade PALM for the period above.


By iam802

Trend trading with Ichimoku