Ichimoku

There are five plots that make up the Ichimoku Cloud indicator set.  These are their names and calculations:

Conversion Line (Tenkan Sen): (MaxHigh+MinLow)/2  …   using period = 9
Base Line (Kijun Sen): (MaxHigh+MinLow)/2  …   using period = 26
Lagging Span (Chiku Span): Price Close shifted back 26 bars
Leading Span A (Senkou A): (Conversion + Base)/2 (Leading Span A is shifted forward 26 bars)
Leading Span B (Senkou B): (MaxHigh+MinLow)/2  …  using period = 52 (Leading Span B is shifted forward 26 bars)

The Conversion and Base Lines are analyzed in relationship to one another.  These two plots move very similarly to Moving Averages.  Therefore, when the shorter term indicator (Conversion) rises above the longer term indicator (Base), the issue’s trend is typically positive.  When the Conversion line falls below the Base line, the issue’s trend is typically negative.

The Conversion and Base lines, as a group, are then analyzed in relationship to the ‘Cloud’, which is composed of the area between Leading Span A and Leading Span B.  When the Conversion and Base lines are decidedly above the ‘Cloud’, the issue’s trend is decisively positive.  When the Conversion and Base lines are decidedly below the ‘Cloud’, the issue’s trend is decisively negative.

Important:  When the Conversion and Base lines are both above the ‘Cloud’ and the issue’s Price is in an established uptrend, Price should tend to use the Conversion, Base, Leading Span A and Leading Span B levels as support.  When the Conversion and Base lines are both below the ‘Cloud’ and the issue’s Price is in an established downtrend, Price should tend to use the Conversoin, Base, Leading Span A and Leading Span B levels as resistance.

Major shifts in indicator direction and in relative positioning should be monitored and can provide insight into likely key trend reversals.

The final indicator included in the set – Lagging Span – is nothing more than Price Close shifted backward 26 bars.  Crossovers among Lagging Span and the other indicators in the set provide visual confirmation that a significant Price behavior is taking place.