One does not have to be a rocket scientist to understand how important price and time are in options strategies – even more so than when trading the underlying instrument. If the expiry date is too early, potential gains may be seriously curtailed or non-existent, as one has not allowed enough time for the move to map out. Choose the wrong strike price, and the market may never get there. Buy an option before an interim high or low is clearly in place and you may suffer a massive drawdown in the value of the option, plus time decay, before things then start moving in the right direction.
Let’s think in detail which elements of Ichimoku Kinko charting can help with timing, and which help with price levels.
Next look at the Cloud itself to see
• where it thins, and
• whether it crosses over.
These dates are also potentially important turning points. Consider Chikou Span and whether it is struggling among a densely packed group of candles, or whether it is currently soaring or plummeting with no visible signs of resistance or support. In the first case, when in a congestion zone, count how many days forward this continues, say, maybe another three weeks.
One would assume therefore that price moves are likely to be limited while this remains the case. In strongly trending markets Chikou Span will not tell you where the move will stop, but it can be useful in determining how far a correction is likely to go as and when prices reverse.
In other words, where previous candles will act as support for the current market.
Conversely, one could increase price targets if the next leg is an I wave and a strong trend already exists. This is also the case when Chikou Span faces no immediate obstacles. Assume very conservative price targets when the moving averages are creeping horizontally across the page.
Senkou Span B (the highest plus the lowest price of the last 52 days divided by 2) is probably the most important of all, and if prices break decisively through here a very serious re-think, and maybe reversal, of strategy is needed.
The Timespan Principle can also help in picking interim chart levels. For example, in an N wave higher, if the first leg was 17 days long the next one might take 9 days. On days seven to eleven when prices are correcting lower, watch carefully for conventional signs that a base is emerging. Once established, one might assume that the final leg higher will take 17 days making it equal to the first impulsive move up. One would end up with a (17+9+17-2) = 41 combination. Again, on days 40 to 44 watch for signs of topping.
Option buyers
The timing element for both buyers and writers of options is very important. Buyers will tend to avoid initiating a trade if it looks likely that prices will move sideways for some time. In a trending market the buyer should analyze the most recent pattern, work out the price target and likely date target, and buy an option with the appropriate strike for expiry just after the day count. For prices that look set to break though Clouds, these should be monitored closely and bought only once they have managed a daily or weekly close through key levels. Be ready to sell an option which has reached its price target sooner than expected in order to recoup some time premium.Option writers
Those who grant options face a different and difficult task often likened to picking up nickels in front of a bulldozer. Small steady profits can be made by nimble traders, but could be wiped out by one catastrophically big loss. Ideally, all options they sell will expire worthless. Try to sell options which expire just before a cluster of date targets. Also sell options whose strikes are just beyond pattern objectives or big Clouds. If possible concentrate on selling one month options as with these you will know where the Clouds lie, not six month expiries as you won’t have the necessary road map.Let’s think in detail which elements of Ichimoku Kinko charting can help with timing, and which help with price levels.
Time element
For timing, the Time Principle is the obvious place to start. Remember, 9, 17 and 26 days are the basic building blocks, plus combinations of these three. Plot these dates starting at important highs and lows and watch for where these cluster, as this is the most likely date for the next interim high or low. Also consider the Wave Principle, mapping out the most likely path assuming that the next leg will be the same length (or a related number) as the first leg.Next look at the Cloud itself to see
• where it thins, and
• whether it crosses over.
These dates are also potentially important turning points. Consider Chikou Span and whether it is struggling among a densely packed group of candles, or whether it is currently soaring or plummeting with no visible signs of resistance or support. In the first case, when in a congestion zone, count how many days forward this continues, say, maybe another three weeks.
One would assume therefore that price moves are likely to be limited while this remains the case. In strongly trending markets Chikou Span will not tell you where the move will stop, but it can be useful in determining how far a correction is likely to go as and when prices reverse.
In other words, where previous candles will act as support for the current market.
Price levels
Now consider price levels, including objectives, interim support and resistance, and turning points. Again the Price Target Principle is the obvious place to start. Study the size and timing of the previous waves in I, V, N and 4 patterns, then pinpoint the end of the next wave. Adjust this if it lies just the other side of a very big Cloud. Also reduce the price target if, in order to get there, Chikou Span would have to power quickly through a tight cluster of candles.Conversely, one could increase price targets if the next leg is an I wave and a strong trend already exists. This is also the case when Chikou Span faces no immediate obstacles. Assume very conservative price targets when the moving averages are creeping horizontally across the page.
Trend reversals
How can Ichimoku Kinko charts help in deciding at what price the trend will reverse? When a price target has been met, watch for powerful reversal candles and other conventional signs of topping (basing), for example a double top or rounded bottom. If this also coincides with the edge of a Cloud, so much the better. Similarly, if Chikou Span has hit a brick wall this too will help reverse the trend. Keep in mind support level S, where what had been resistance becomes support and vice versa, as this too is helpful in picking turning points, especially when it coincides with the last leg of a wave pattern.Support and resistance
Ichimoku Kinko charting helps a lot in terms of interim highs and lows because of its range of staggered support and resistance levels. The moving averages themselves, useful to very active traders, are the first in line - and these also provide support for Chikou Span (remember: it is today’s price plotted 26 days ago). The candles of 26 days ago also lend it support/resistance. The top and bottom of the Cloud are usually the next in line to stall a move.Senkou Span B (the highest plus the lowest price of the last 52 days divided by 2) is probably the most important of all, and if prices break decisively through here a very serious re-think, and maybe reversal, of strategy is needed.
The Timespan Principle can also help in picking interim chart levels. For example, in an N wave higher, if the first leg was 17 days long the next one might take 9 days. On days seven to eleven when prices are correcting lower, watch carefully for conventional signs that a base is emerging. Once established, one might assume that the final leg higher will take 17 days making it equal to the first impulsive move up. One would end up with a (17+9+17-2) = 41 combination. Again, on days 40 to 44 watch for signs of topping.
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