Trade Stock Indices

Ichimoku Technical 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 trading price & 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. The five lines are calculated as follows:

1) Tenkan-Sen: Conversion Line: Red Line (Highest High + Lowest Low) / 2, for last 9 trading price periods

2) The Kijun-Sen: Base Line: Blue Line (Highest High + Lowest Low) / 2, for last 26 trading price periods

3) Chikou Span: Lagging Span: Green Line Today's closing trading price drawn 26 trading 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, for the past 52 trading price periods, drawn 26 price periods ahead

Kumo: Cloud: area between Senkou Span A and B

Technical Analysis & Generating Trading Signals

Bullish signal - Tenkan-Sen crosses 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 Indices Trading

Bullish cross-over signal forms above the Kumo (clouds),

Very strong buy trade signal.

Bearish cross-over signal forms below Kumo (clouds),

Very strong sell trade signal.

If a bullish/ bearish cross-over trading signal takes place within the Kumo (clouds) it's considered a medium strength buy or sell trade 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 trade signal.

Support and Resistance Levels

Support and resistance zones can be predicted by the presence of Kumo (clouds). The Kumo can also be used to identify the current trend of the trading market.

• If trading price is above the Kumo, the prevailing market trend is said to be upwards.
• If trading price is below the Kumo, the prevailing market trend is said to be downwards.

The Chikou Span or Lagging Span is also used to determine the strength of the buy or sell trade signal.

• If the Chikou Span is below the closing trading price of the last 26 periods ago and a sell short signal is given, then the strength of the trend is down-wards, otherwise the signal is considered to be a weak sell trade signal.
• If there is a bullish signal and the Chikou Span is above the trading price of the last 26 periods ago, then the strength of the trend is to the upside, otherwise it's considered to be a weak buy trade signal.