Ichimoku Charts: An Introduction to Ichimoku Kinko Clouds (Nicole Elliott, 2007)

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The number three is believed to mark the start or turning point of a series of events. Sakata’s five rules are:

  1. Sanzan - three mountains, 
  2. Sanpei - three soldiers, 
  3. Sansen - three rivers, 
  4. Sankoo - three spaces, 
  5. Sanpo - three laws.
For Ichimoku charts we use two specific moving averages which are: 
  1. Tenkan-sen (“Conversion Line”): is a nine-day moving average, 
    • (Highest High + Lowest Low)/2, for the past 9 periods
  2. Kijun-sen (“Base Line”): is a twenty six-day moving average.
    • (Highest High + Lowest Low)/2, for the past 26 periods
Senkou Span A & B
  1. The first line of the Cloud, the deep pink one, is known as Senkou Span A (“Leading Span A”) and is calculated by adding the Tenkan (9-day average) and Kijun (26-day average) values and dividing by two. This line is then plotted 26 days ahead of the last complete day’s trading. 
    • (Tenkan-Sen + Kijun-Sen)/2, plotted 26 periods ahead
  2. The second line (turquoise), imaginatively called Senkou Span B (“Leading Span B”), is calculated by finding the highest price of the last 52 days, adding to it the lowest price of the last 52 days, and dividing by two. This is also plotted 26 days ahead.
    • (Highest High + Lowest Low)/2, for the past 52 periods, plotted 26 periods ahead
The final line to be added is Chikou Span (“Lagging Span”)
  1. Today’s closing price plotted 26 periods behind
    • Today’s closing price plotted 26 periods behind
Reading the Chikou Span
  • If Chikou Span is trading above the candlestick of 26 days ago, then today’s market is said to be in a bullish long term phase; conversely.
  • If Chikou Span is trading below the candlestick of 26 days ago, then today’s market is in a long term bearish phase.
  • In a bull market Chikou Span and the Clouds provide a solid base, and above you is nothing but clear blue skies which will not hamper your way up; conversely.
  • In a bear market, Chikou Span and dark heavy Clouds will grind you down and push you lower.
Price target

Kihon Suchi


Discard methods as nececessary

  • For very explosive markets which are trending very strongly, I immediately discard the Relative Strength Index.
  • When markets are in very strong bull or bear moves, I tend to discard all wave counts, and therefore most price targets. Nevertheless, I keep an eye on time targets.
  • Likewise in sideways moves I will discard moving averages and the Ichimoku Cloud.

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