the hAnDbook of teChnICAl AnAlysIsof encapsulating the entire current market sentiment and future outlook on a
single chart.
Components of an Ichimoku Chart
An Ichimoku chart is essentially a Japanese candlestick chart superimposed with
five moving‐average‐type overlay indicators. Ichimoku charting was originally
intended to offer a longer‐term outlook on the markets, and as a consequence
the daily chart was the preferred timeframe when conducting Ichimoku chart
analysis. As will be explained later, there is another reason why the daily chart was
chosen with respect to the lookback periods selected for the Ichimoku overlays.
Nevertheless, many modern‐day practitioners also apply Ichimoku analysis to the
sub‐hourly and hourly timeframes. As popularity for hourly and sub‐hourly ap-
plications of Ichimoku chart analysis increases, so will its reliability and potential
impact on market action, all fueled by the effects of self‐fulfilling prophecy.
The five overlay indicators found on the Ichimoku Japanese candlestick chart are:
- Tenkan‐sen (Conversion or Turning Line)
- Kijun‐sen (Base Line)
- Senkou Span A (Cloud Span A or Leading Span A)
- Senkou Span B (Cloud Span B or Leading Span B)
- Chikou Span (Lagging Line)
The area between the Senkou Span A and Senkou Span B is known as the
Ichimoku cloud, or kumo. The cloud is the most important element on an Ichimoku
chart, and the majority of trades initiated are based on the interaction of price with
the cloud. Generally speaking, all five overlays act for the most part as bullish or
bearish signals, while the cloud has the added function of being the main and single
most important trigger for entry to, and exit from, the markets. See Figure 16.1 for
an example of a typical Ichimoku chart, that is, a standard daily Japanese candle-
stick chart with five overlay indicators.
FIgure 16.1 Ichimoku Daily Chart of Bank of America Corp.
Courtesy of Stockcharts.com