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Technical Analysis - Ichimoku Cloud Agenda • Background • The basic setup and calculations • Buy and Sell signals Background • Introduced in 1969 by Goichi Hosada • Ichimoku Kinko Hyo meaning “equilibrium at a glance” • Commonly applied in Asia and should be respected when doing analyses on Asian instruments • Based on a philosophy examining simple things in nature from a mountain top and how they act in their respective environment In the MT4: a) Tenkan-Sen b) Kijun-Sen c) Senkou Span A d) Senkou Span B e) Chinkou Span Decomposition Tenkan-sen is the average value of the price for the first time interval (nine days), meaning: 𝑇𝑒𝑛𝑘𝑎𝑛 𝑆𝑒𝑛 = 𝐻𝑖𝑔ℎ𝑒𝑠𝑡 ℎ𝑖𝑔ℎ(9) + 𝐿𝑜𝑤𝑒𝑠𝑡 𝑙𝑜𝑤(9) 2 Kijun-sen is the average value of the price for the second time interval, 26 days 𝐻𝑖𝑔ℎ𝑒𝑠𝑡 ℎ𝑖𝑔ℎ(26)+𝐿𝑜𝑤𝑒𝑠𝑡 𝑙𝑜𝑤(26) 𝐾𝑖𝑗𝑢𝑛 − 𝑆𝑒𝑛 = Senkou Span A is the middle of interval between two above mentioned lines (Tenkan-sen and Kijun-sen) projected 26 days in the future; 𝑇𝑒𝑛𝑘𝑎𝑛 𝑆𝑒𝑛 −𝐾𝑖𝑗𝑢𝑛 𝑆𝑒𝑛 𝑆𝑒𝑛𝑘𝑜𝑢 𝑆𝑝𝑎𝑛 𝐴 = Senkou Span B is the average value of the price for the past 52 days projected 26 days into the future; 𝑆𝑒𝑛𝑘𝑜𝑢 𝑆𝑝𝑎𝑛 𝐵 = 𝐻𝑖𝑔ℎ𝑒𝑠𝑡 𝐻𝑖𝑔ℎ 52 − 𝐿𝑜𝑤𝑒𝑠𝑡 𝐿𝑜𝑤 (52) Chinkou Span is the current closing price projected 26 days back Interpretation Tenkan-sen – also known as the Conversion Line – is interpreted as a simple moving average Kijun-sen – also known as the Base Line – similar to the Tenkan-sen, but on a longer time-frame Senkou Span A& B: The ingredients of the cloud Area in between is shaded illustrating the cloud Composition gives an idea of future trend Chinkou Span is the current closing price projected 26 days back and is used for comparison on the chart and defines potential trends Signals When studying the Ichimoku Chart, it is important to notice the following: Cross of Tenkan-Sen and Kijun-Sen Closing price against the Cloud Position of Chinkou Span Senkou Span A & B Composition/Cross The more signals in sync, the stronger the signal As always in Technical Analysis, we are looking for CONFIRMATION Signals Signal 1: Cross of Tenkan-Sen (red) and Kijun-Sen (blue) Bullish: Red line closes above blue Bearish: Red line closes below blue Signals Signal 2: Closing price relative to Cloud… Bullish Bullish Tendency Interpretation Price Action Bullish Price above Cloud with bullish momentum Bullish Tendency In the Cloud, but past 2-3 days bullish Bearish Price below Cloud with bearish momentum Bearish Tendency In the Cloud, but past 2-3 days bearish Bearish Tendency Bearish Signals Signal 3: Position of Kinjun-Sen (Green line) Bullish Bullish: Kinjun-Sen crosses above the closing price Bearish: Kinjun-Sen crosses below the closing price Remember that the KinjunSen is lagging 26 days and is also known as the “lagging mountain” Bearish 10 Signals Rising Market Declining Market Signal 4: Senkou A & B relationship A is above B is a sign of a rising market A is below B is a sign of a declining market 11 Example 12 Example 13 Example 14 Indicator Example CAD/JPY Daily Example AUD/JPY Daily Example EUR/JPY Daily Tenkan-Sen vs Kijun-Sen Bullish Bearish Bullish Closing vs Cloud Indecisive Bearish Bullish Cloud Composition Declining Market Declining Market Declining Market Chinkou-Span Positive Negative Positive 15