Ichimoku Stocks 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 and help the stocks trader to determine the most suitable time to enter or exit the stocks market.
Calculation
This stocks 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 stocks price periods
2) Kijun-Sen; Base Line; Blue Line (Highest High + Lowest Low) / 2, for the 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) 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 and B
Stocks Technical Analysis and How to Generate 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 signals generated.
Technical Analysis in Stocks Trading
Bullish crossover signal occurs above the Kumo (clouds),
Very strong buy signal.
Bearish crossover signal occurs below the 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 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). The Kumo can also be used to identify the current stocks trend of the stock trading market.
- If stocks price is above the Kumo, the prevailing market stocks trend is said to be upwards.
- If stocks price is below the Kumo, the prevailing market stocks trend is said to be downwards.
The 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 stocks price of the last 26 periods ago and a sell short signal is given, then the strength of the stocks 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 stocks price of the last 26 periods ago, then the strength of the stocks trend is to the upside, otherwise it is considered to be a weak buy signal.
