The Ichimoku charts, another form of technical analysis, have made their way from Japan. Having grown in popularity, they are often called “cloud charts” because of the central characteristic of the system- a cloud. The cloud is the space between the two leading spans (see below). The chart’s full name, Ichimoku Kinko Hyo means “one-glance equilibrium.” Its purpose is to present a system to follow trends as well as to identify significant support and resistance levels.
Fundamental Features of Ichimoku Charts
Tenkan Line:
The faster moving average based on the average of the high and low of the prior nine days.
Kijun Line:
The slower moving average based on the average of the high and low from the prior twenty-six days.
Senkou Span A (Leading Span A):
The average of the Tenkan and Kijun lines from the prior twenty-six days, projected twenty-six days into the future.
Senkou Span B (Leading Span B):
The average of the high and low of the prior fifty-two days projected twenty-six days into the future.
Chikou Span (Lagging Span):
Today’s closing price reflected twenty-six days into the past.
The Ichimoku chart is a daily-based chart so it’s an ideal system for medium to longer-term traders. The trend is prevailing when prices are above the cloud and down when prices are below. Everything is evaluated relative to the cloud. Trading signals are founded on the position of the current price relative to the lines as well as crossovers of the lines themselves. Paying close attention to the Tenkan and Kijun line can indicate a buying and selling signal but the signal’s true stamina depends on the position of the price relative to the cloud.