Ichimoku Stock Indices Trading 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 stock index price and help the stock indices trader to determine the most suitable time to enter or exit the stock index market.
Calculation
This indices technical indicator consists of five lines drawn using the midpoints of previous highs and lows. The five lines are calculated as follows:
1) Tenkan-Sen; Conversion Line; Red Line (Highest High + Lowest Low) / 2, for the last 9 stock index price periods
2) Kijun-Sen; Base Line; Blue Line (Highest High + Lowest Low) / 2, for the last 26 stock index price periods
3) Chikou Span; Lagging Span; Green Line Today's closing stock index price drawn 26 stock index price periods behind
4) Senkou Span A; Leading Span A = (Tenkan-Sen + Kijun-Sen) / 2, drawn 26 stock index price periods ahead
5) Senkou Span B; Leading Span B; (Highest High + Lowest Low) / 2, for the past 52 stock index price periods, drawn 26 stock index price periods ahead
Kumo; Cloud; area between Senkou Span A and B
Stock Indices Technical Analysis and Generating Stock Indices Trading Signals
Bullish signal- Tenkan-Sen crosses the Kijun-Sen from below.
Bearish signal- Tenkan-Sen crosses the Kijun-Sen from above.
However, there are different levels of strength for the buy and sell stock indices signals generated.
Technical Analysis
Bullish crossover signal occurs above the Kumo (clouds),
Very strong buy stock indices signal.
Bearish crossover signal occurs below the Kumo (clouds),
Very strong sell stock indices signal.
If a bullish/ bearish crossover signal takes place within the Kumo (clouds) it is considered a medium strength buy or sell stock indices 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 stock indices signal.
Support and Resistance Levels
Support and resistance levels can be predicted by the presence of Kumo (clouds). The Kumo can also be used to identify the current stock indices trend of the stock index trading market.
- If stock index price is above the Kumo, the prevailing market stock indices trend is said to be upwards.
- If stock index price is below the Kumo, the prevailing market stock 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 stock indices signal.
- If the Chikou Span is below the closing stock index price of the last 26 periods ago and a sell short signal is given, then the strength of the stock indices trend is downwards, otherwise the signal is considered to be a weak sell stock indices signal.
- If there is a bullish signal and the Chikou Span is above the stock index price of the last 26 periods ago, then the strength of the stock indices trend is to the upside, otherwise it is considered to be a weak buy stock indices signal.
