Ichimoku Technical Indicator
Ichimoku is a Japanese charting technique that was developed 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 stocks price & help the trader to determine the most suitable time to enter or exit the stock market.
Calculation
This stock 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 the last 9 stocks price periods
2) Kijun-Sen: Base Line: Blue Line (Highest High + the Lowest Low) / 2, for last 26 stocks price periods
3) Chikou Span: Lagging Span: Green Line Today's closing stocks price drawn 26 stocks price periods behind
4) Senkou Span A: Leading Span A = (Tenkan Sen + Kijun Sen) / 2, drawn 26 stocks price periods ahead
5) The Senkou Span B: Leading Span B: (Highest High + Lowest Low) / 2, for the past 52 stocks price periods, drawn 26 stocks price periods ahead
Kumo: Cloud: area between Senkou Span A & B
Stock Trading Analysis & Generating Trading Signals
Bullish signal - Tenkan-Sen crosses the 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 trade signals generated.
Technical Analysis in Stocks Trading
Bullish crossover signal forms above the Kumo (clouds),
Very strong buy stock trade signal.
Bearish cross-over signal occurs below the Kumo (clouds),
Very strong sell stock trade signal.
If a bullish/ bearish crossover signal takes place within the Kumo (clouds) it's considered a medium strength buy or sell stock trade signal.
A bullish crossover that occurs below the clouds is considered a weak buy stock signal while a bearish crossover that occurs above the clouds is considered a weak sell stock trade signal.
Support and Resistance Levels
Support & resistance levels can be predicted by the presence of Kumo (clouds). Kumo can also be used to identify the current stock trend of the stock market.
- If stocks price is above the Kumo, the prevailing market stock trend is said to be upwards.
- If stocks price is below the Kumo, the prevailing market stock trend is said to be downwards.
The Chikou Span or Lagging Span is also used to determine the strength of the buy or sell stock trade signal.
- If the Chikou Span is below the closing stocks price of the last 26 periods ago and a sell short signal is given, then the strength of the stock trend is downwards, otherwise the signal is considered to be a weak sell stock trade signal.
- If there is a bullish signal and the Chikou Span is above the stocks price of the last 26 periods ago, then the strength of the stock trend is to the upside, otherwise it is considered to be a weak buy stock trade signal.
