Bitcoin's 'Ichimoku Cloud' Breakout Could Lead to Continued Uptrend

While bitcoin's cloud breakout points to more gains ahead, heightened geopolitical risk calls for tight stop loss on all crypto positions, one observer said.

AccessTimeIconMar 3, 2022 at 7:52 a.m. UTC
Updated May 11, 2023 at 4:38 p.m. UTC

Bitcoin (BTC) appears to have turned the corner and could continue to gain ground in the near term, Fairlead Strategies said, citing a widely tracked technical tool called Ichimoku cloud.

"Bitcoin has cleared resistance defined by the daily cloud, and it is likely to confirm its breakout upon today's close," Katie Stockton, founder and managing partner of Fairlead Strategies, told CoinDesk in an email on Wednesday. While bitcoin traded slightly weak on Wednesday, it managed to print a UTC close above the cloud, confirming a bullish trend change.

"The breakout reverses the intermediate-term downtrend and puts the next major hurdle on the chart in the $50,000-$51,000 area based on the 200-day moving average (MA) and a 50% retracement level," Stockton added.

Created by Japanese journalist Goichi Hosoda in the late 1960s, the Ichimoku cloud comprises two lines – the leading span A and the leading span B. Both lines are plotted 26 days ahead of the last candle to indicate future support or resistance.

The indicator uses a somewhat complex formula to plot these lines. However, users don't need to know the inner workings, which are taken care of by chart providers, and can focus on interpreting the signals given by the indicator.

The cloud turns green, signaling a bullish bias when the leading span A crosses above the leading span B. The cloud color changes to red whenever the leading span B drops under the leading span A.

Crossovers above or below the cloud are widely taken to represent early signs of a bullish or bearish trend change.

The 200-day moving average (MA) and Fibonacci retracement are widely used to identify long-term trends and potential support and resistance levels.

Bitcoin's daily chart with Ichimoku cloud, MACD and stochastic indicators (Fairlead Strategies/TradingView)
Bitcoin's daily chart with Ichimoku cloud, MACD and stochastic indicators (Fairlead Strategies/TradingView)

The latest breakout is backed by an above-zero or bullish reading on the MACD histogram. "Our short-term gauges are pointing higher," Stockton noted.

So far, the follow-through to the breakout has been dismal, with the cryptocurrency trading 1% lower on the day at $43,400. The daily chart stochastic is close to flashing an overbought signal, indicating potential for temporary consolidation before a continued move higher.

"Risk is heightened in this environment, so we would keep a tight stop loss for all cryptocurrency positions," Stockton said, adding that the daily cloud can now offer support.

Bitcoin has rallied over 25% since hitting lows under $34,500 a week ago, supposedly on the back of increased demand from Russia and Ukraine.

According to the latest reports, Russians have taken control of the Ukrainian port city of Kherson and a Ukrainian delegation is on the way to Belarus for the second round of ceasefire talks with their Russian counterparts.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.