Ichimoku Technical Indicator
Ichimoku is a Japanese charting technique that was developed before by a Japanese newspaper writer, with the pen name of Ichimoku Sanjin.
- Ichimoku means "a glance" or "one look"
- Kinko means "equilibrium" or "balance"
- Hyo is the Japanese word for "chart"
Thus, Ichimoku means, "a glance at an equilibrium chart". Ichimoku attempts to identify the likely direction of commodities price and help the trader to determine the most suitable time to enter or exit the commodities market.
Calculation
This commodity indicator consists of five lines drawn using the midpoints of previous highs & lows. Five lines are calculated as follows:
1) Tenkan-Sen: Conversion Line: Red Line (Highest High + Lowest Low) / 2, for the last 9 commodities price periods
2) Kijun-Sen: Base Line: Blue Line (Highest High + Lowest Low) / 2, for the last 26 commodities price periods
3) Chikou Span: Lagging Span: Green Line Today's closing commodities price drawn 26 commodities price periods behind
4) The Senkou Span A: Leading Span A = (Tenkan Sen + Kijun Sen) / 2, plotted 26 commodities price periods ahead
5) Senkou Span B: Leading Span B: (Highest High + the Lowest Low) / 2, for the past 52 commodities price periods, drawn 26 commodities price periods ahead
Kumo: Cloud: area between the Senkou Span A and B
Commodity Technical Analysis & How to Generate Trading Signals
Bullish signal - Tenkan-Sen crosses the Kijun-Sen from below.
Bearish signal - Tenkan-Sen crosses Kijun-Sen from above.
However, there are different areas of strength for the buy & sell commodities trade signals generated.
Technical Analysis in Commodity Trading
Bullish cross-over signal occurs above the Kumo (clouds),
Very strong buy commodities trading signal.
Bearish crossover signal occurs below the Kumo (clouds),
Very strong sell commodities trading signal.
If a bullish/ bearish cross-over signal takes place within the Kumo (clouds) it is considered a medium strength buy or sell commodities trading signal.
A bullish crossover that occurs below the clouds is considered a weak buy commodity signal while a bearish crossover that occurs above the clouds is considered a weak sell commodities trading signal.
Support and Resistance Levels
Support & resistance levels can be predicted by the presence of Kumo (clouds). The Kumo can also be used to identify the current commodity trend of the commodities trading market.
- If commodities price is above the Kumo, the prevailing market commodity trend is said to be upwards.
- If commodities price is below the Kumo, the prevailing market commodity trend is said to be downwards.
The Chikou Span or Lagging Span is also used to determine the strength of the buy or sell commodities trading signal.
- If the Chikou Span is below the closing commodities price of the last 26 periods ago and a sell short signal is given, then the strength of the commodity trend is downwards, otherwise the signal is considered to be a weak sell commodities trading signal.
- If there is a bullish signal and the Chikou Span is above the commodities price of the last 26 periods ago, then the strength of the commodity trend is to the upside, otherwise it is considered to be a weak buy commodities trading signal.
