the hAnDbook of teChnICAl AnAlysIs
One advantage of using Ichimoku indicator overlays is that they forecast future
price barriers. Practitioners are able to easily visualize potential future cloud sup-
port in an uptrend and potential future cloud resistance in a downtrend. Again, this
is a consequence of using forward‐displaced moving averages. It is also useful to
note that Ichimoku charting is not affected by the type of scaling used on its charts.
Switching from arithmetic to logarithmic scaling does not have an impact on the
analysis. This is because moving averages are strictly numerically determined.
16.4 Time and Price Domain Characteristics of Ichimoku Overlays
The method of construction of the overlays lends itself naturally to the identi-
fication and favorable interaction of natural market‐based cycle harmonics. The
prevalent use of harmonically related periods like 26 and 52 (which is 2 × 26) is
especially effective on the daily charts, as this takes full advantage of the underlying
monthly or four‐week cycle in the markets. Extending the lookback period to 52
days helps to seek out larger harmonically related cycles that may potentially cor-
roborate shorter‐term signals. The cloud, which is forward displaced by 26 days,
is essentially projecting future support and resistance levels that are one monthly
cycle ahead. Senkou Span B tracks the next larger harmonic cycle and uses this
information to forecast support and resistance over a period of the next shorter‐
term cycle. The harmonicity appears on the charts when the chosen cycle periods
actually reflect some real underlying repetitive market behavior. See Figure 16.23.
Ichimoku charting is really about the significance of the 50 percent retrace-
ment level. This is fairly obvious as three Ichimoku overlays use mid‐range prices,
that is, the 50 percent retracement level over three separate but harmonically re-
lated lookback periods—9, 26, and 52, where the 52‐day period represents the
FIgure 16.22 Whipsaw Action Across Ichimoku Moving Averages on the Natural Gas
Daily Chart.
Source: MetaTrader 4
