Ichimoku Charting and Analysis
Initiating entries via Ichimoku moving mid‐range
price averages
Many traders also initiate entries when the moving averages cross over. For example,
a long trade is occasionally initiated when the Tenkan‐sen crosses above the Kijun‐sen.
But care must be taken that this trade is taken in the direction of the larger trend. It
is therefore best to only initiate such an entry when there are other supportive or
bullish indications, like having the cloud or other overlays rising at a bullish angle.
The Chikou Span should also be retroactively above both cloud and price. Finally, the
cloud itself should be favorably thick before the Ichimoku moving average crossover
long trade is taken. The converse is true for initiating trades in a downtrend.use of japanese Candlesticks at the
Ichimoku Overlays
It is important to note that practitioners of Ichimoku charting use Japanese can-
dlestick pattern analysis at the Ichimoku overlays as a means of defining entry
and exit levels in the market. For example, the appearance of a shooting star at
Senkou A resistance is a strong indication of a potential correction or reversal in
price toward the lower range of the cloud. Similarly, the appearance of a bullish
engulfing pattern at Senkou B support is a strong indication of a potential correc-
tion or reversal in price toward the upper range of the cloud. Japanese candlestick
analysis is an integral part of Ichimoku chart analysis.
Note that many practitioners also combine Western-based oscillators as an
additional means of identifying potential price reaction and reversal at the various
Ichimoku overlay barriers. For a detailed analysis of Japanese candlestick pat-
terns, please refer to Chapter 14.16.3 Advantages and Disadvantages of Using Ichimoku Charting
One major disadvantage of using moving averages is that they perform rather
poorly during ranging action or consolidation. Since most of the Ichimoku over-
lays are based on some kind of moving average construction, they tend to suffer
from whipsaws in ranging markets with the issuance of too many buy and sell
signals. Just as with conventional moving averages, this renders Ichimoku chart-
ing highly susceptible to false signals being generated as price whipsaws around
the four moving averages (with the exception of Chikou Span). Ichimoku there-
fore performs better during trending action. See Figure 16.22.
Such whipsaws affect the Tenkan‐sen and Kijun‐sen much more than the
cloud. This is because the cloud is forward displaced by 26 periods, making it less
sensitive and susceptible to market noise and whipsaws. This is the very same rea-
son Joe DiNapoli and Bill Williams incorporate forward‐shifted moving averages
within their popular Double Repo and Alligator trade setups, respectively.
Another issue associated with using multiple moving‐average‐type overlay in-
dicators in Ichimoku charting is that it increases the probability of generating con-
flicting signals. This usually confuses practitioners new to Ichimoku cloud analysis.