Dwelling Deeper in Ichimoku

Dwelling Deeper in Ichimoku

Submitted by adil on Tue, 03/25/2014 - 14:35

Not many technical indicators pack all the necessary information at one place. Ichimoku Kinko Hyo, is a technical indicator that provides guidance with regards all necessary elements that go in to entering a trade, such as, resistance, support, trend or momentum. In earlier post, a key element of the indicator, the Kumo or cloud was largely ignored and Tenkan-Sen and Kijun-Sen were discussed in detail for identification of position entry points for a binary options trader. This does not mean that Kumo is of less use or no use. On the contrary, Kumo has the potential to give a binary options trader many profitable trades.

As mentioned in earlier post, the Kumo has two components, the Senkou Span A and Senkou Span B. The space between these two leading spans forms a cloud which gives off one look information on various aspects. When the distance between the two leading spans is small or in other words when the cloud is thin, the prices are less volatile and tend to break through the resistance or support fairly easily. On the other hand, if the distance between these two leading spans is larger or in other words the cloud is thick, the prices tend to remain quite volatile and present stronger support and resistance levels.

A trader has two main ways of finding a trend with the help of Kumo. When the prices are above the Kumo, the trend is in upper direction, when the prices are below the Kumo the direction of price is downside, and when the price moves within the Kumo, they are taken as flat. This is the most basic way to read a Kumo.

The other way of finding a trend goes a step further. If the Senkou Span A is rising and goes above the Senkou Span B, the uptrend is thought to have strengthened. Platforms color this eventuality in lighter shades, such as green. Contrariwise, if the Senkou Span B is falling and goes below the Senkou Span A, the downtrend is thought to have strengthened. Platforms color this occurrence in darker shades, such as red.

One important thing to note is that, the Senkous are the averages of Tenkan-Sen and Kijun-Sen lines. Therefore, Senkou A is calculated over 9 periods and Senkou B is calculated over 26 periods ahead. As the cloud is shifted forward that many period, the binary options trader has good glimpse of where the price will likely move, that is, what is the support or resistance level going to be.

Therefore, if the binary option trader complements these signals with other indicators such as candlestick indicators, the trader can bring near perfection to timing his entries in the market for call or put binary option trade. If, for example, the Kumo shows favorability to an uptrend, the trader can perfectly time entries using bullish candlestick patterns. If the Kumo shows a downtrend, use the bearish candlestick confirmation to recurrently enter trades until the Kumo stops showing a downtrend bias.