Ichimoku Case Study : PALM Inc. (PALM)

Palm provide one of the best case study for Ichimoku as a trend trading tool.

If you have gotten the stock back in end 2008 or early 2009, you will have ride it to the top at around $17 from somewhere between $3 or $6.

Here’s one for the bearish trade. Do note that it is used for trend trading.


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.



Ichimoku : How I use the Chikou Span for Trading

I had a comment on my use of Chikou Span left by  ‘dcmb’ and I thought it is best to start a new post to further discuss this.

The comment was on the use of Chikou Span and the use of the current price level against it.

at ichiwiki, the chikou was used against the price 26 days ago.

but you are using the chikou against the current price?

So, when do we use Chikou Span against historic price and when do we use it against the current price. I believe, the above is my mistake of not highlighting the scenario better. Or it could also be a case of me not explaining it well enough.

Let’s illustrate it with a series of charts.

In this case, I will use a recent trade that I have on RedHat (RHT).

RedHat at 28 August.

  • Chikou Span have not cut above the price level at 26 periods back
  • From the Chikou Span, I can also see that there is a resistant level at 23.26

So, what does this means?

To me, it means that even if Chikou Span cuts the historic price highlighted by the yellow circle, it will still not be a bullish signal. I would want to see it break above 23.26 as well.

On top of that, we can see from the chart that Tenkan sen have not cut Kijun sen yet. So, not all bullish signals are in place.

2009Aug-Red Hat Inc-800x600_28Aug

Let’s move the date forward on the chart.

RedHat at 1 Sept.

Tenkan sen has cut Kijun sen. But, if we look at Chikou Span, it is pointing down now and has not cut above the historic price yet.

We can also see from the Chikou Span that there is now another immediate resistant level at 22.96

With this, we have 2 resistant levels to break. Personally, when I see 2 resistant levels that is so close, I will want the price level to clear both hurdles before taking a position.

In this case, I see 23.26 as the level to clear.

2009Sep-Red Hat Inc-800x600_1Sept

Let’s move forward on the chart again.

RedHat as of 4 Sept.

As we can see from the chart below, we have bullish confirmation on the following indicators:

  • Chikou Span has break through historic price level and punch through the 2 resistance levels
  • Tekan sen has also cut Kijun sen with both lines pointing up. These are bullish signals.

So, as can be seen when I say ‘Chikou Span cuts the current price level’, it should perhaps be ‘Chikou Span cuts the cuts the immediate resistant levels instead’. Perhaps, that may be clearer.

2009Sep-Red Hat Inc-800x600_4Sept