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Ichimoku

Ichimoku charts are trend following indicators that identify support and resistance levels and generate trading signals in a way similar to moving averages. Ichimoku chart lines are shifted forward in time. This creates wider support and resistance zones and decreases the risk of trading false breakouts.

The Ichimoku indicator has four main lines:

Turning Line = (Highest High + Lowest Low) / 2, for the past n1 days
Standard Line = (Highest High + Lowest Low) / 2, for the past n2 days
Leading Span 1 = (Standard Line + Turning Line) / 2, plotted n3 days ahead of today
Leading Span 2 = (Highest High + Lowest Low) / 2, for the past n4 days, plotted n5 days ahead of today

Like a moving average crossover strategy, Ichimoku is long when the Turning Line crosses the Standard Line from below. They generate is short  when the Turning Line crosses the Standard Line from above.

Additionally, area that is formed between Leading Spans 1 and 2 is known as a cloud, and defines support or resistance. Clouds not only act as support or resistance, they also help to identify trend direction. When prices are above the cloud, the trend is up. When prices are below the cloud, the trend is likely down.

 


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