Ichimoku – A Technical Indicator Used to Determine Support and Resistance Levels

Ichimoku is a technical indicator used to determine market support and resistance levels. It provides support and resistance levels which are projections into the future. Unlike other technical indicators, the Ichimoku cloud is best used in conjunction with other tools such as the Relative Strength Index (RSI), which confirms momentum in a certain direction. However, you should be aware of the limitations of Ichimoku trading and should not rely on it alone.

Ichimoku Cloud

When you use the Ichimoku Cloud indicator, you are strengthening your trend signals when the cloud is moving in the same direction as the price. It uses five formulas: the Conversion Line, the Base Line, Leading Span A and B, and the lagging closing price line. These formulas are based on previous calculations. The Leading Span A and B are plotted 26 periods in the future, while the Lagging Span is plotted at the current price.

The Ichimoku Cloud uses two trendlines for its boundary, known as Kumo and Senkou. Both have predictive qualities based on momentum. The Senkou (Leading Span A) is calculated by adding the highest high and lowest low of the past 52 periods. Then, the price crosses the Span A and B, and enters the Cloud. Once the Senkou (Leading Span A) crosses the Base line, the price moves into the Cloud and reverts its trend.

Tenkan Sen

One of the most popular technical trend trading indicators is the Ichimoku Kinko Hyo, and the Tenkan Sen is one of its elements. It can generate numerous conflicting signals in non-trending markets. Tenkan Sen signals are classified according to their relationship to the Kumo (cloud) and other elements on the chart. However, to truly determine whether a signal is valid or invalid, the entire chart must be analyzed.

The Tenkan-Sen indicator filters its signals based on the “cloud” at the top of the indicator’s window. The cloud helps traders determine if the market is in an uptrend or a downtrend. Similarly, if the price is moving within the cloud, it may indicate choppy trading or a trend reversal. In other words, if the Tenkan-Sen crosses above the Kijun-Sen, you might want to buy and exit the long position. The opposite of this occurs if the price does not cross the cloud within four periods.

Leading Span

Leading Span in Ichimoku is a technical indicator derived from price movements. This indicator consists of several components, each with their own formula. The first part of the Ichimoku Cloud is called Kumo, and is based on evolving price action lines. Leading Span A is calculated by adding the highest high and lowest low from the previous 52 periods, and dividing the result by two. Hence, leading span B is derived from values at the beginning of the 52-day range.

A Leading Span in Ichimoku charts is a projection of 26 periods ahead. The higher the Leading Span A, the more likely the price will rise. However, it may also fall into a downtrend. The Leading Span B can also act as a support or resistance line. In addition to being a projection of the future, Leading Spans are a great way to identify possible levels of support and resistance in the market.

Ichimoku Conversion

The Ichimoku system is a trend-following tool. When the Cloud and Conversion Line cross, the price will enter a cloud, signaling a change in trend momentum. Similarly, when the Conversion Line crosses below the Base Line, it signals a bearish trend. As a result, this indicator is useful for finding entry and exit points. One interesting feature of this indicator is that its Tenkan line can be a moving average, and the Kijun and Chikou lines are equivalent to Momentum and MACD readings.

In addition to determining trend continuation, Ichimoku can be used to spot a reasonable entry price. When a price crosses a cloud or breaks through a Base Line, it is a good time to buy. It is also possible to make a profit when the Conversion Line drops below the Base Line. It is a good idea to position your protective stop loss below the breakout candle. Once you’ve entered a position, you should take the profits.