Ichimoku Kinko Hyo
Thank you very much, just getting started with ichimoku and this is more than helpfull. On the other hand, he might miss on future trend moves when price reverts back into the original direction; not all Conversion-Base line crosses lead to trend reversals.
Bullish Signals using Ichimoku analysis:
The lagging span of the Ichimoku is left out by choice since it does not add much value. We will now take a look at each component individually and then put it all together to help you find better trade signals.
As I said earlier, that the Conversion and Base lines look like moving averages on your charts, but they do something different. The Conversion and the Base lines show the middle of the 9 and the 26 period high and low. This means that they look back 9 and 26 periods candles , take the highest and the lowest price levels during that period and then plot the line in the middle of that range.
In the screenshot below, the green and the red line are the Ichimoku Base and Conversion lines. The Conversion and Base lines have two purposes: Secondly, they provide momentum information. When price is trading above the two lines and when the Conversion line is above the Base line, it signals bullish momentum.
This is also very similar to moving averages: The Ichimoku Cloud is made up of a lower and an upper boundary and the space in between the two lines is then often shaded either green or red. The first and faster moving boundary of the Cloud is the average between the Conversion and the Base lines. The second, slower moving boundary is the middle between the 52 period high and low. An important characteristic of the Cloud is that it is projected 26 periods into the future. Again, in the screenshot below we plotted two regular moving averages next to the Cloud and used an offset of 26 shift the moving averages into the future.
You can see that the moving averages are almost identical to the Ichimoku Cloud. Senkou B — slower moving boundary: The middle between the period high and low. The general idea behind the Cloud is very similar to the Conversion and Base lines since the two boundaries are based on the same premises.
First, the Cloud acts as support and resistance and it also provides trend direction and momentum information. But since the Cloud uses a 52 period component as opposed to 9 and 26 , it moves slower than the Conversion and Base lines.
Basically, the Cloud confirms an uptrend when price is above the Cloud and a downtrend when price is below the Cloud. The space within the Cloud is a noise zone and trading here should be avoided. A rally is reinforced when the Cloud is green and a strong downtrend is confirmed by a red Cloud. The Cloud, thus, is a way to trade with the longer term trend and we can sum up our findings as follow:.
Now that we have a solid understanding of what the individual components do and what their signals and meanings are, we can take a look at how to use the Ichimoku indicator to analyze price charts and produce trading signals.
With the help of the Ichimoku Cloud, traders can easily filter between longer term up and down trends. When price is below the Cloud, it reinforces the downtrend and vice versa. During strong trends, the Cloud also acts as support and resistance boundaries and you can see from the screenshot below how price kept rejecting the Cloud during the trend waves.
Thus, the Cloud is ideal when it comes to filtering between bullish and bearish market phases. However, as most momentum indicators, the Ichimoku Cloud loses its validity during range markets. The Conversion and Base lines are the fastest moving component of the Ichimoku indicator and they provide early momentum signals. In the screenshot below we marked different points with the numbers 1 to 4 and we will now go through them to understand how to use the Conversion and Base lines:.
At that time, price was also trading above both lines which confirms the bullishness. Price dipped back into the Cloud for a moment, but found support. This could have been seen as an entry. The Conversion and Base lines also crossed into a bearish setup, further confirming the momentum shift. Finally, price entered the Cloud validating the change. At the same time, price was trading below the Cloud. All those signals confirm a strong downtrend and could have been used as a sell entry.
Then, the Conversion and Base lines kept crossing each other, which further confirmed that momentum was shifting. Eventually, momentum died off and price consolidated sideways. We are all about generating confluence which means combining different trading tools and concepts to create a more robust trading method.
Our preferred indicator is the RSI and it works together with the Ichimoku perfectly. The screenshot below shows that by adding the RSI and looking for RSI divergences, it is possible to identify high probability reversals. Just as moving averages, the Ichimoku indicator can also be used for your stop placement and trade exits.
When exiting a trend-following trade based on the Ichimoku signals, there are a few things you should know:. The conservative exit 1: A more conservative trader would exit his trades once the Conversion and Base lines cross into the opposite direction of the ongoing trend. Click on the quick reference items to the left or the signal markers in the charts or in the right hand panel for help on just those items. The left hand panel below the chart shows a list of indices or shares, with the date and type of the most recent signal for each entry.
Use the buttons at the top left to select different lists. Clicking on the name of the index or share in the list will view the chart for it. The list can be sorted by clicking the graphics at the top of each column; use Shift and Ctrl for multiple column sorts. The right hand panel below the chart shows details of the currently viewed index or share and the most recent of each of the five kinds of signal for it. Greyed information in the left or right hand panels indicates that the market has closed since the last data available for the index or share, and you should come back at a later time for updated information.
Charts Shown lists the shares you have looked at using the Show Chart panel in your current session. Candle Chart Line Chart. Shows a pencil at the top right of the chart that lets you draw lines. Lines are temporary , they are not saved nor carry across charts. Ichimoku Elements Ichimoku Signals. Remove Multiple Entries from Watchlist Click the trash can again to return to normal view.
Tenkan Sen Turning line Tenkan Sen: Kijun Sen Standard line Kijun Sen: Chikou Span Lagging line Chikou Span: Show values when rolling over chart. Show flags in list.