Ichimoku Technical Indicator
Ichimoku is a Japanese charting technique that was created before by a Japanese newspaper writer, with the pen name of Ichimoku Sanjin.
- Ichimoku means 'a glance' or 'one look'
- Kinko means 'equilibrium' or 'balance'
- Hyo is the Japanese word for "chart"
Thus, Ichimoku means, 'a glance at an equilibrium chart'. Ichimoku attempts to identify the likely direction of stock indices trading price and help the trader to figure out the most suitable time to enter or exit the stock indices trading market.
Calculation
This stock indices indicator consists of five lines drawn using the midpoints of previous highs & lows. The five lines are calculated as follows:
1) Tenkan-Sen: Conversion Line: Red Line (Highest High + Lowest Low) / 2, for last 9 stock indices trading price periods
2) The Kijun-Sen: Base Line: Blue Line (Highest High + Lowest Low) / 2, for last 26 stock indices trading price periods
3) Chikou Span: Lagging Span: Green Line Today's closing stock indices trading price drawn 26 stock indices trading price periods behind
4) Senkou Span A: Leading Span A = (Tenkan Sen + Kijun Sen) / 2, plotted 26 stock indices price periods ahead
5) Senkou Span B: Leading Span B: (Highest High + Lowest Low) / 2, for the past 52 stock indices trading price periods, drawn 26 stock indices price periods ahead
Kumo: Cloud: area between Senkou Span A & B
Indices Technical Analysis & Generating Trading Signals
Bullish signal - Tenkan-Sen crosses Kijun-Sen from below.
Bearish signal - Tenkan-Sen crosses Kijun-Sen from above.
However, there are different areas of strength for the buy and sell stock indices trade signals generated.
Technical Analysis in Indices Trading
Bullish cross-over signal forms above the Kumo (clouds),
Very strong buy indices trade signal.
Bearish cross-over signal forms below Kumo (clouds),
Very strong sell indices trade signal.
If a bullish/ bearish cross-over trading signal takes place within the Kumo (clouds) it's considered a medium strength buy or sell indices trade signal.
A bullish crossover that occurs below the clouds is considered a weak buy stock indices signal while a bearish crossover that occurs above the clouds is considered a weak sell indices trade signal.
Support & Resistance Levels
Support & resistance levels can be predicted by the presence of Kumo (clouds). The Kumo can also be used to identify the current indices trend of the stock indices trading market.
- If stock indices trading price is above the Kumo, the prevailing market indices trend is said to be upwards.
- If stock indices trading price is below the Kumo, the prevailing market indices trend is said to be downwards.
The Chikou Span or Lagging Span is also used to determine the strength of the buy or sell indices trade signal.
- If the Chikou Span is below the closing stock indices trading price of the last 26 periods ago and a sell short signal is given, then the strength of the indices trend is downwards, otherwise the signal is considered to be a weak sell indices trade signal.
- If there is a bullish signal and the Chikou Span is above the stock indices trading price of the last 26 periods ago, then the strength of the indices trend is to the upside, otherwise it is considered to be a weak buy indices trade signal.
