Ichimoku Cloud Trading Strategy

Ichimoku Cloud Trading Strategy http://www.financialtrading.com/ It is not often that a new way of looking at charting comes to light, but the Ichimoku technique is very recent in the Western trading world, and is much more detailed than other indicators. In fact books have been written about using the Ichimoku, and if you want more details you should search out some specialist literature. Ichimoku was invented in the 20th century in Japan, and is applicable to all trading charts and effective for about 80% of them. It can look very confusing when you first ask for the Ichimoku to be plotted on the price chart. There are several lines and a coloured cloud, and various ways of interpreting their actions. The Standard line, which can also be referred to as the Baseline, is similar to a moving average. Instead of taking the average of the closing prices for each day, it averages just the highest and lowest price for the look back period of, typically, 26 days. That is, it is the midpoint between the highest and lowest price. The Turning line is similar, but for the last nine days, typically. It is the midpoint between the highest and lowest prices that you have seen in the last nine days. The Lagging line is perhaps the simplest line, as it is just the closing price line shifted backwards by 26 days. In other words, it is the price line shown on the chart 26 days before it actually happens. Of course, the lagging line cannot be drawn up to the present time, but is left 26 days short. The cloud is drawn between lines called the Leading Span A and the Leading Span B. The way these are drawn is intriguing. Leading Span A is drawn by taking the midpoint between the Turning line and the Standard line, and plotting it 26 days in the future. Leading Span B takes the midpoint of the highest and lowest 52 days, and then shifts it forward 26 days, to be level with Leading Span A. The area between the Leading Span lines is coloured or hatched, and changes colour depending which line is on top, showing at a glance whether you are looking at a bullish or bearish market. For a full explanation of the many ways that Ichimoku can be interpreted, you would need to refer to one of the many textbooks, most of which unfortunately are in Japanese. Here is a summary of some of the main features. When the price is above the cloud, it indicates a bullish market, and the price below the cloud is bearish. If the price is in the cloud it may tend to go in the same direction, but may reverse. If the cloud is thick, it indicates an accelerating trend, and similarly thin clouds can indicate that a reversal is coming. The top and bottom lines of the cloud tend to act as support and resistance. You will often see the price tracking along the edge of the cloud. When the lagging line crosses the cloud, this is taken as a strong signal of a trend change.

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