Ichimoku 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 price and help the trader to figure out the most suitable time to enter or exit the trading market.
Calculation
This indicator consists of five lines drawn using the midpoints of previous highs & lows. Five lines are calculated as follows:
1) Tenkan Sen: 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[Highest High + Lowest Low]--/--2, for the past 52 price periods, drawn 26 price periods ahead
Kumo: Cloud: area between Senkou Span A & B
XAUUSD Analysis & Generating Signals
Bullish signal - Tenkan-Sen crosses Kijun-Sen from below.
Bearish signal - Tenkan-Sen crosses Kijun-Sen from above.
However, there are different levels of strength for the buy & sell signals generated.
Analysis in XAUUSD Trading
Bullish cross-over signal forms above the Kumo (clouds),
Strong buy signal.
Bearish cross-over signal occurs below the Kumo (clouds),
Strong sell signal.
If a bullish/ bearish cross-over signal takes place within the Kumo (clouds) it's considered a medium strength buy or sell signal.
A bullish cross-over that occurs below the clouds is considered a weak buy signal while a bearish cross over that occurs above the clouds is considered a weak sell signal.
Support & Resistance Zones
Support & resistance levels can be predicted by presence of Kumo (clouds). The Kumo can also be used to identify the current trend of the trading market.
- If price is above the Kumo, the current market trend is said to be upwards.
- If price is below Kumo, the current market trend is said to be downwards.
The Chikou Span or Lagging Span is also used to determine strength of the buy or 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, then the strength of the trend is downward, otherwise the signal is considered to be a weak sell signal.
- If there is a bullish signal and the Chikou Span is above the price of the last 26 periods ago, then the strength of the trend is to the upside, otherwise it is considered to be a weak buy signal.
