Sunday, September 08, 2013 1:55:16 AM
Hi DA. Here are notes I put together from when I first began researching Ichimoku Clouds.
The Ichimoku indicator contains five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B, and chickou span.
Tenkan-sen (conversion line): (9-period high + 9-period low)/2) The Tenkan-Sen line is the conversion line used specifically in the Ichimoku Cloud equilibrium charts. Along with the 26-period moving average (Kijun-Sen) it is one of two moving average lines displayed in the chart. The Tenkan-Sen is generally used together with the Kijun-Sen to create predications of future momentum. A buy signal is created when the Tenkan-sen line moves above the Kijun-Sen, while a sell signal is created when the Tenkan-Sen line moves below the Kijun-Sen line.
Kijun-sen (base line): (26-period high + 26-period low)/2) Primarily used to measure medium-term momentum. It is the mid-point between the highest high and the lowest low and just about the same as tankan-sen, except the number of time periods used in the calculation is increased to better gauge longer-term momentum. A buy signal is created when the tenkan-sen line moves above the Kijun-sen, while a sell signal is created when the Tenkan-sen line moves below the Kijun-sen line.
Senkou Span A: (Conversion Line + Base Line)/2) Senkou span A is always plotted alongside Senkou span B and the area between the two lines is filled with shaded indicator lines, also known as the cloud, which is used by traders to predict levels of future support/resistance. Senkou span A is calculated by using the mid-point between Tenkan-sen and Kijun-sen. The trend is downward when Senkou span A is below senkou span B. This indicator is most commonly used to predict the reversal of a current trend when the senkou spans cross over each other.
Senkou Span B: (52-period high + 52-period low)/2) Likewise, senkou span B is always plotted alongside Senkou span A. The area between the two lines is shaded. The shaded area (the cloud) is used to give traders an idea of future support and resistance. Senkou span B is calculated by using the mid-point between the highest high and the lowest low. The trend is downward when Senkou span A is below senkou span B. Senkou span B is generally the slowest moving component of the Ichimoku indicator because it is created by using the greatest number of time periods in its calculation (generally 52).
Chickou span: Close plotted 26 days in the past Created by plotting recent price movement 26-periods behind the latest closing price. The number of periods used to lag the Chikou span is customizable so that transaction signals are generated more or less frequently. This span is often called the lagging span. The trend is upward when the Chikou span is located above the closing prices and downward when the indicator is located below them. Many traders watch for the Chikou span to cross below the closing prices as a signal that the price of the asset is getting exhausted and is likely to experience a pullback.
Overall trend: The overall trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself. When senkou span A is rising above senkou span B the trend is stronger upward, and is typically colored green. When senkou span B rises above senkou span A, the trend is stronger downward and is denoted with a red-colored cloud.
Bullish Signals:
•Price moves above Cloud (trend)
•Cloud turns from red to green (ebb-flow within trend)
•Price Moves above the Base Line (momentum)
•Conversion Line moves above Base Line (momentum)
Bearish Signals:
•Price moves below Cloud (trend)
•Cloud turns from green to red (ebb-flow within trend)
•Price Moves below Base Line (momentum)
•Conversion Line moves below Base Line (momentum)
The Conversion Line (blue) is the fastest and most sensitive line. It follows price action the closest. The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. The 9-day is faster and more closely follows the price plot. The 26-day is slower and lags behind the 9-day. The 9 and 26 are the same periods used to calculate MACD.
IBM: Was in an uptrend from June to January as it traded above the Cloud. Notice how the Cloud offered support in July, early October and early November. The Cloud provides a glimpse of future resistance. The entire Cloud is shifted forward 26 days. This means it is plotted 26 days ahead of the last price point to indicate future support or resistance.
Boeing downtrend and the cloud. The trend changed when Boeing broke below Cloud support in June. The Cloud changed from green to red when the Leading Span A (green) moved below the Leading Span B (red) in July. The cloud break represented the first trend change signal, while the color change represented the second trend change signal. Notice how the Cloud then acted as resistance in August and January.
Kimberly Clark: Two bullish signals within an uptrend. First, the trend was up because the stock was trading above the Cloud and the Cloud was green. The Conversion Line dipped below the Base Line for a few days in late June to enable the setup. A bullish crossover signal was triggered when the Conversion Line moved back above the Base Line in July. The second signal occurred as the stock moved toward Cloud support. The Conversion Line moved below the Base Line in September to enable the setup. Another bullish crossover signal was triggered when the Conversion Line moved back above the Base Line in October.
Note: Sometimes it is hard to determine exact Conversion Line and Base Line levels on the price chart. As of the January 8 close, the Conversion Line was 62.62 (blue) and the Base Line was 63.71 (red).
AT&T producing a bearish signal within a downtrend. First, the trend was down as the stock was trading below the Cloud and the Cloud was red. After a sideways bounce in August, the Conversion Line moved above the Base Line to enable the setup. This did not last long as the Conversion Line moved back below the Base Line to trigger a bearish signal on September 15th.
Disney producing two bullish signals within an uptrend. With the stock trading above the green cloud, prices moved below the Base Line (red) to enable the setup. This move represented a short-term oversold situation within a bigger uptrend. The pullback ended when prices moved back above the Base Line to trigger the bullish signal.
Horton producing two bearish signals within a downtrend. With the stock trading below the red cloud, prices bounced above the Base Line (red) to enable the setup. This move created a short-term overbought situation within a bigger downtrend. The bounce ended when prices moved back below the Base Line to trigger the bearish signal.
Stock
Chart Overlays
The Ichimoku indicator contains five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B, and chickou span.
Tenkan-sen (conversion line): (9-period high + 9-period low)/2) The Tenkan-Sen line is the conversion line used specifically in the Ichimoku Cloud equilibrium charts. Along with the 26-period moving average (Kijun-Sen) it is one of two moving average lines displayed in the chart. The Tenkan-Sen is generally used together with the Kijun-Sen to create predications of future momentum. A buy signal is created when the Tenkan-sen line moves above the Kijun-Sen, while a sell signal is created when the Tenkan-Sen line moves below the Kijun-Sen line.
Kijun-sen (base line): (26-period high + 26-period low)/2) Primarily used to measure medium-term momentum. It is the mid-point between the highest high and the lowest low and just about the same as tankan-sen, except the number of time periods used in the calculation is increased to better gauge longer-term momentum. A buy signal is created when the tenkan-sen line moves above the Kijun-sen, while a sell signal is created when the Tenkan-sen line moves below the Kijun-sen line.
Senkou Span A: (Conversion Line + Base Line)/2) Senkou span A is always plotted alongside Senkou span B and the area between the two lines is filled with shaded indicator lines, also known as the cloud, which is used by traders to predict levels of future support/resistance. Senkou span A is calculated by using the mid-point between Tenkan-sen and Kijun-sen. The trend is downward when Senkou span A is below senkou span B. This indicator is most commonly used to predict the reversal of a current trend when the senkou spans cross over each other.
Senkou Span B: (52-period high + 52-period low)/2) Likewise, senkou span B is always plotted alongside Senkou span A. The area between the two lines is shaded. The shaded area (the cloud) is used to give traders an idea of future support and resistance. Senkou span B is calculated by using the mid-point between the highest high and the lowest low. The trend is downward when Senkou span A is below senkou span B. Senkou span B is generally the slowest moving component of the Ichimoku indicator because it is created by using the greatest number of time periods in its calculation (generally 52).
Chickou span: Close plotted 26 days in the past Created by plotting recent price movement 26-periods behind the latest closing price. The number of periods used to lag the Chikou span is customizable so that transaction signals are generated more or less frequently. This span is often called the lagging span. The trend is upward when the Chikou span is located above the closing prices and downward when the indicator is located below them. Many traders watch for the Chikou span to cross below the closing prices as a signal that the price of the asset is getting exhausted and is likely to experience a pullback.
Overall trend: The overall trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself. When senkou span A is rising above senkou span B the trend is stronger upward, and is typically colored green. When senkou span B rises above senkou span A, the trend is stronger downward and is denoted with a red-colored cloud.
Bullish Signals:
•Price moves above Cloud (trend)
•Cloud turns from red to green (ebb-flow within trend)
•Price Moves above the Base Line (momentum)
•Conversion Line moves above Base Line (momentum)
Bearish Signals:
•Price moves below Cloud (trend)
•Cloud turns from green to red (ebb-flow within trend)
•Price Moves below Base Line (momentum)
•Conversion Line moves below Base Line (momentum)
The Conversion Line (blue) is the fastest and most sensitive line. It follows price action the closest. The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. The 9-day is faster and more closely follows the price plot. The 26-day is slower and lags behind the 9-day. The 9 and 26 are the same periods used to calculate MACD.
IBM: Was in an uptrend from June to January as it traded above the Cloud. Notice how the Cloud offered support in July, early October and early November. The Cloud provides a glimpse of future resistance. The entire Cloud is shifted forward 26 days. This means it is plotted 26 days ahead of the last price point to indicate future support or resistance.
Boeing downtrend and the cloud. The trend changed when Boeing broke below Cloud support in June. The Cloud changed from green to red when the Leading Span A (green) moved below the Leading Span B (red) in July. The cloud break represented the first trend change signal, while the color change represented the second trend change signal. Notice how the Cloud then acted as resistance in August and January.
Kimberly Clark: Two bullish signals within an uptrend. First, the trend was up because the stock was trading above the Cloud and the Cloud was green. The Conversion Line dipped below the Base Line for a few days in late June to enable the setup. A bullish crossover signal was triggered when the Conversion Line moved back above the Base Line in July. The second signal occurred as the stock moved toward Cloud support. The Conversion Line moved below the Base Line in September to enable the setup. Another bullish crossover signal was triggered when the Conversion Line moved back above the Base Line in October.
Note: Sometimes it is hard to determine exact Conversion Line and Base Line levels on the price chart. As of the January 8 close, the Conversion Line was 62.62 (blue) and the Base Line was 63.71 (red).
AT&T producing a bearish signal within a downtrend. First, the trend was down as the stock was trading below the Cloud and the Cloud was red. After a sideways bounce in August, the Conversion Line moved above the Base Line to enable the setup. This did not last long as the Conversion Line moved back below the Base Line to trigger a bearish signal on September 15th.
Disney producing two bullish signals within an uptrend. With the stock trading above the green cloud, prices moved below the Base Line (red) to enable the setup. This move represented a short-term oversold situation within a bigger uptrend. The pullback ended when prices moved back above the Base Line to trigger the bullish signal.
Horton producing two bearish signals within a downtrend. With the stock trading below the red cloud, prices bounced above the Base Line (red) to enable the setup. This move created a short-term overbought situation within a bigger downtrend. The bounce ended when prices moved back below the Base Line to trigger the bearish signal.
Stock Chart Overlays
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