Trade Stock Indices

Ichimoku Indicator

Ichimoku is a Japanese charting method that was developed before by a Japanese newspaper writerjournalisteditor, with the pen name known of as Ichimoku Sanjin.

  • Ichimoku means: 'a glance' or 'a look'
  • Kinko meaning 'equilibrium' or 'balance'
  • Hyo is the Japanese word/term for "chart"

Thus, Ichimoku means, 'a glance at an equilibrium chart'. Ichimoku attempts to identify the likely direction of price & help the trader to figure out the most suitable trading time to enter or exit the market.

Ichimoku Indicator - Index MetaTrader 4 Indicator - Ichimoku Indicator

Calculation

This indicator consists of five lines drawn using the midpoints of previous highs and lows. The 5 lines are calculated as follows:

1) Tenkan-Sen: The Conversion Line: Red Line (Highest High + Lowest Low) / 2, for last 9 price periods

2) Kijun-Sen: Base Line: Blue Line (Highest High + Lowest Low) / 2, for last 26 price periods

3) Chikou Span: Lagging Span: Green Colored Line Today's closing price drawn 26 price periods behind

4) Senkou Span A: Leading Span A = (Tenkan Sen + Kijun Sen) / 2, plotted 26 price periods ahead

5) Senkou Span-B: Leading Span-B: (Highest High + Lowest Low)/2, for the past 52 price periods, drawn 26 price periods ahead

Kumo: Cloud: area between Senkou Span A and B

Technical Analysis and Generating Trade Signals

Bullish trading signal - Tenkan-Sen crosses the Kijun-Sen from below.

Bearish trading signal - Tenkan-Sen crosses Kijun-Sen from above.

However, there are different areas of strength for the buy and sell stock signals generated.

Ichimoku Stock Indicator - Index MetaTrader 4 Indicator - Ichimoku Indicator

Technical Analysis in Indices Trade

Bullish cross-over signal forms above the Kumo (clouds),

Strong buy signal.

Bearish cross-over signal forms below Kumo (clouds),

Strong sell signal.

If a bullish/ bearish cross-over trading signal takes place within the Kumo (clouds) it's considered a medium strength buy or sell signal.

A bullish crossover that occurs below the clouds is considered a weak buy signal while a bearish crossover that occurs above the clouds is considered a weak sell signal.

Support & Resistance Zones

Support & resistance areas can be predicted by the presence of Kumo (clouds). The Kumo can also be used to identify the current trend of the market.

  • If price is above the Kumo, current trend is said to be upward.
  • If the price is below the Kumo, current market trend is said to be downward.

The Chikou Span or Lagging Span also is used to measure the energy of the buy/sell signal.

  • If the Chikou Span indicator is below the closing price of the last 26 periods ago and a sell short signal is given/generated, then the strength of the market trend is downward, otherwise the signal is considered to be a weak sell signal.
  • If there is a bullish signal & the Chikou Span is above the price of the last 26 periods ago, then the strength of the market trend is to the up-side, otherwise it's considered to be a weak buy signal.

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