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