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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Ichimoku Charting & Technical Analysis:

The Visual Guide for Beginners to Spot the Trend Before Trading Stocks, Cryptocurrency and Forex using Strategies that
Work (Second edition)
Published by Tripod Solutions Inc.
© 2022 by Charles G. Koonitz
All rights reserved.

Warning
No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any other means,
electronic, mechanical, photocopying, recording, or otherwise, without the prior written express permission of the
publisher and copyright owner. Unauthorized duplication of this material in any form is strictly prohibited. Lawbreakers
will be prosecuted to the fullest extent of the jurisprudence.

Disclaimer
The limit of liability/disclaimer of warranty: The advice and strategies contained herein may not be suitable for your
situation. You should consult a professional where appropriate. Neither the publisher nor author shall be liable for any
loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Charts generated with Stockcharts.com and Trading View

Follow Koonitz on Twitter: @JumpyStocks

ISBN: 978-1-989118-61-0 Paperback color

ISBN: 978-1-989118-62-7 Digital book
ISBN: 978-1-989118-63-4 Audio book
Second edition: November 2022

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TABLE OF CONTENTS

FIRST EDITION PREFACE.........................................................................................................vii

SECOND EDITION PREFACE......................................................................................................ix

INTRODUCTION..................................................................................................................... 1

CHAPTER 1–The Basics of Ichimoku........................................................................................ 3

Three concepts for Ichimoku.....................................................................................................................4

The functionalities of Ichimoku................................................................................................................5

Equilibrium or trend.................................................................................................................................6

Advantages of Ichimoku...........................................................................................................................8

Ichimoku preview...................................................................................................................................10

Ichimoku chart providers........................................................................................................................11

CHAPTER 2–The Basics of Technical Analysis...........................................................................13

Evolution of stock charts.........................................................................................................................13

Time frame and trading style.................................................................................................................16

Support and resistance...........................................................................................................................18

The market trend....................................................................................................................................19

The importance of volume.....................................................................................................................21

Chart patterns........................................................................................................................................22

Leading and lagging indicators..............................................................................................................23

Japanese candlestick patterns................................................................................................................24

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Divergences............................................................................................................................................26

Emotional control...................................................................................................................................27

CHAPTER 3–The Components of Ichimoku..............................................................................29

Distinguish alert from trading signal......................................................................................................29

Conversion Line or Tenkan-Sen...............................................................................................................31

Base Line or Kijun-Sen............................................................................................................................34

Leading Span A or Senkou Span A..........................................................................................................37

Leading Span B or Senkou Span B..........................................................................................................38

Lagging Span or Chikou Span.................................................................................................................40

Cloud or Kumo........................................................................................................................................43

Ichimoku principles................................................................................................................................46

CHAPTER 4–Interpretation of the Ichimoku System................................................................47

A curious chart.......................................................................................................................................47

The clarity of the curves.........................................................................................................................49

Number theory.......................................................................................................................................51

Three time zones....................................................................................................................................52

The mysterious Cloud.............................................................................................................................53

Fibonacci numbers.................................................................................................................................55

Protection against losses........................................................................................................................57

Important reminders about the Cloud....................................................................................................59

CHAPTER 5–Ichimoku Strategies...........................................................................................61

Conversion Line/Base Line Cross Strategy...............................................................................................62

Base Line Cross Strategy.........................................................................................................................67

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Cloud Breakout Strategy.........................................................................................................................69

Lagging Span/Price Cross Strategy.........................................................................................................73

Lagging Span/Cloud Cross Strategy........................................................................................................76

Important reminders about strategies...................................................................................................78

CHAPTER 6–Trigger Signals Faster.........................................................................................79

Analysis of a bullish reversal...................................................................................................................80

Analysis of a bearish reversal..................................................................................................................83

CHAPTER 7–The Triple Screen Strategy..................................................................................87

How to determine time frames..............................................................................................................87

How to use the Triple screen technique..................................................................................................88

CHAPTER 8–Ichimoku and Classic Indicators...........................................................................91

The combination of Ichimoku Cloud and EMA........................................................................................92

The combination of Ichimoku Cloud and MACD......................................................................................93

The combination of Ichimoku Cloud and DMI with ADX..........................................................................94

CHAPTER 9–Trading Rules.....................................................................................................97

The preliminary trading.........................................................................................................................97

Trading rules for buying.........................................................................................................................98

Trading rules for selling........................................................................................................................100

Trading rules for short selling...............................................................................................................102

Trading rules for closing a short position..............................................................................................104

Trading traps to avoid...........................................................................................................................106

CHAPTER 10–Ichimoku for Every Market..............................................................................109

Bitcoin chart.........................................................................................................................................110

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Precious metal chart.............................................................................................................................111

Euro/Dollar chart..................................................................................................................................112

CHAPTER 11–The Unexplored Area......................................................................................115

CHAPTER 12–Anatomy of a Bear Market..............................................................................119

The Bitcoin Crash..................................................................................................................................119

Quantitative easing..............................................................................................................................121

Nasdaq–Before the markets fall...........................................................................................................123

Nasdaq–Trend reversal.........................................................................................................................124

Nasdaq – The fall of the index..............................................................................................................125

The end of the bear market..................................................................................................................127

Trading on a short-term horizon...........................................................................................................128

CONCLUSION......................................................................................................................131

GLOSSARY..........................................................................................................................133

ALSO BY CHARLES G. KOONITZ..............................................................................................138

REFERENCES......................................................................................................................139

INDEX................................................................................................................................140

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FIRST EDITION PREFACE

M
y start on the stock markets coincided with the arrival of the
Internet, which opened the door to stock market investing.
Finally, the trader no longer needed an intermediary to place
his orders. At the same time, stock chart providers began to invade the
web. My university education in Administration introduced me to stock
market investing without going into the details of technical analysis. After
extensive research, I enrolled in training focused on Japanese stock market
indicators and candlesticks. It was a revelation to me and many of my
colleagues.
Since then, technical analysis has taken over investments that were once based
on the reputation of a company. The use of many indicators has reinforced my
investment decisions and reduced financial risk. Entry and exit strategies have
replaced investments based on emotions, and I am constantly on the lookout
for new features to improve my trading.
For those with modest experience in technical analysis, do you have the vague
impression that your charts are overloaded with indicators? Do the graphics
occupy too much space and height? Do you find it hard to scroll through the
contents? Do you have an overview of the situation? Are you tired of changing
the settings of the indicators according to situations or time horizons? If you
answer yes to these questions, then Ichimoku is for you.
I discovered Ichimoku, thanks to a colleague who had done some training at
an investment company in Japan. Like most uninitiated, I found the bizarre
presentation of Ichimoku confusing. I took the time to explore this new method
of market analysis, without neglecting the indicators I had been using for two
decades. Then one day, the click happened; it was my second revelation. An
extraordinary breakthrough that makes it easy to identify neutral, bullish, and
bearish areas.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Well aware that Ichimoku does not attract as much attention as the classic
Western indicators, I have noticed increasing interest over the years. With the
enthusiasm generated by Japanese candlesticks in the ’90s, it is Ichimoku’s
turn to make a major breakthrough in the world of technical analysis. Traders
in Japan and traders in the Asian and Forex markets rely exclusively on the
Ichimoku system for their analysis.
Having already published some books on technical analysis, it was enough for me
to embark on this new project. I have made a point of producing a book that is
intended primarily for the uninitiated and also for traders who want to discover
another way to analyze markets. I opted for a large-format book to highlight
the illustrations and the many graphics all in color. I wrote Ichimoku Charting &
Technical Analysis for the pleasure of producing the book I would have liked to
have in my early days in technical analysis.
You must know that I have nothing to sell; no training or subscription. I
strongly urge you to consider Ichimoku to do your analysis for any market:
Bitcoin, currencies, index funds, Forex, commodities, and stocks. You will see
the simplicity of the system in identifying areas of disturbance that slow down
the price from continuing to climb. You will find yourself putting aside the
indicators you have worked with for many years.
My best wishes for future success,
Charles G. Koonitz

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SECOND EDITION PREFACE

T
he second edition of the book Ichimoku Charting & Technical Analysis
contains improvements since the publication of the original edition.
Several changes have been made to the images, text, and formatting
to facilitate the reader’s understanding. A new chapter focuses on the stock
market crash of 2022, including the Bitcoin crash. While not predictable, these
reversals can be detected using the Ichimoku system. The addition of classic
indicators, chartist patterns, trend lines, and divergences is a bonus.
The cryptocurrency and stock markets have experienced an extraordinary
rise since the first edition was published. The parabolic rise of the markets
following the pandemic has propelled the indexes to new highs, and not all the
credit can be given to the good performance of the economy. External factors
had an impact on the rise of the indexes as well as on the fall of the markets.
The second edition includes both English and Japanese common names of the
Ichimoku indicators.

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ICHIMOKU CHARTING & TECHNICAL ANALYSIS

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INTRODUCTION

I
t was at the end of the 19th century that the first major stock market
theories appeared in the West: “Dow’s theory” by Charles Dow, “Elliott’s
theory of waves” by Ralph N. Elliott, and “William’s theory of angles” by
William D. Gann. These theories have led mathematicians to create indicators
that facilitate market monitoring and to obtain buying and selling signals.
Finally, the investor could fall back on technical tools before investing in the
stock markets. The arrival of computers has changed the reality of trading.
Over the years, traders have witnessed an explosion of new types of charts
and technical indicators more different from each other. Some chart formats
include data that adds to the action, revealing a rather unusual aspect but still
useful for decision-making.
Western traders were far from suspecting that those in the East were also
developing new tools. After the entry into force of the Japanese candlesticks
in the ’90s, Ichimoku made its appearance in the West in the early 2000s.
Ichimoku, but what a funny name for a trading system! This system has multiple
denominations: Ichimoku, Ichimoku Charts, or Ichimoku Cloud. The full name
of this technique is Ichimoku Kinko Hyo, which translates as follows:
ˬˬ Ichimoku means “glance”
ˬˬ Kinko means “equilibrium”
ˬˬ Hyo means “chart”
The union of these three words means “one-glance equilibrium chart.” One
look, and you will be able to identify the trend and potential crossings by the
other indicators. This description is significant to the simplicity of the system.
Unlike conventional indicators that stack one above the other and paralyze the
trader’s analysis, the Ichimoku has only one window.
Some will say with reason, “Why use another system when we already have
access to more than 150 indicators?” Several indicators have similarities
in form, and others generate signals that bring nothing new. The model

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

developed by Ichimoku is different from what exists on the market. The beauty
of the system lies in the fact that the approach remains the same at any time,
regardless of the stock or index analyzed.
Bad timing is the main cause of failure in trading. The trader buys too early
or sells too late. Even worse, the trader invests in a congestion zone when
it is impossible to predict market trajectories. The secret of effective trading
lies in identifying the trend, and it is the strength of Ichimoku. Despite the
effectiveness of the system, I have no intention of treating Ichimoku as if
it happens in a vacuum. Indicators or classic patterns will always have their
places, no matter what trading system is used.
To help beginners in technical analysis, we will provide an overview of the basic
concepts that will benefit the understanding of the Ichimoku system. We will
see in greater detail the six components of Ichimoku that are dependent on each
other. Each element can generate alerts, but the impact will be less compared to
the strength of the group. We will also see the structure of an Ichimoku chart
and the traps set by the financial markets.
One full chapter focuses on five simple strategies that feature Ichimoku indicators.
Strategies combine components and conditions that generate signals of varying
intensity and are tabulated for later reference. We will see some techniques for
increasing signal quality and speeding up the triggering of alerts.
Another chapter will be devoted to the combination of the Ichimoku system
and classical indicators. The combination of techniques is required to reduce
the risk of loss. Using four different situations, I will present the trading rules
to be used when entering or exiting a trade. We will also see that Ichimoku
can be used to analyze the commodity market, the currency market, and the
cryptocurrency market.
A chapter will be devoted to the analysis of the unexplored area of Ichimoku.
To conclude, the last chapter will focus on the analysis of bear markets and the
reasons behind these declines. We will see that the Ichimoku, when combined
with other indicators, makes it easy to spot reversals in indexes and even in
cryptocurrencies.

So come and join the revolution in technical analysis!

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CHAPTER 1

The Basics of Ichimoku

D
espite what many believe, Ichimoku is not a new indicator coming from
nowhere, mirroring miraculous profits. The Ichimoku indicator was
developed by Goichi Hosoda (1898–1982), a Japanese journalist who
wanted to create a great indicator that could help him make better investment
decisions. The first idea dates back to the time of the Second World War.
Hosoda tested his research for over 20 years before making it available to
the public in the late 1960s. He used many students to compile the results of
thousands of tests because the computer was not yet available at the time.
Only two variables are considered for the calculation of the components: the
period and the price. While the volume is vital in Western countries, Hosoda
completely dodged it.
This system improves the quality of the inflows and outflows of the financial
markets, highlights the trend reversals, and most importantly shows the
areas of support and resistance that prevent the price from continuing on its
trajectory. It is a very effective system that requires action only on specific
criteria. Intuition is unacceptable.
The number of investment strategies based on this system remains limited. It is
the number of alerts and signals generated by the system that complicates the
use of Ichimoku. Learning Ichimoku inevitably involves a color chart because
the tool has several components that must be distinguished from each other.
The color of the curves presented in this book respects the general conventions.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Drives that use monochrome devices were not forgotten because an icon is
associated with each indicator.
Hosoda developed three theories related to the development of the Ichimoku
model: wave theory, price target, and time study. To me, the wave theory of
counting waves seems too subjective, just like Elliot’s waves. The goal is not to
expound on one thousand and one topics at a time.
The price target is akin to the target projection of chart patterns that we will see
in Chapter 2. The temporal study refers to the creation of a numerical sequence,
which is the source of the Ichimoku concept. These notions are presented in
Chapter 4. Hosoda’s mission was to show the right moment to invest by using
the Cloud as a trigger.

Three concepts for Ichimoku

At first glance, Ichimoku is a rather vague concept. Some see it as a technical
indicator, others as a type of chart, and the latter see a technical analysis
system instead.
ˬˬ Technical indicator. It is a type of indicator just like the indicators
MACD, RSI, or stochastic. An indicator can generate signals related to
trend, momentum, volatility, and volume.
ˬˬ Chart type. It is a visual medium used to analyze financial securities
such as Japanese candlestick charts, bar graphs, EquiVolume charts, or
continuous line charts. It’s a chart type that uses a lot of indicators.
ˬˬ All-in-one technical analysis system. It is a powerful technical
analysis platform that combines several indicators to follow the
triggering of alerts in order to buy or sell a security. It is an autonomous
system that generates trading signals that consider areas of support and
resistance and also the equilibrium zone.

Ichimoku tells the trader the right time to buy, to sell, and also the time to
avoid the market. It is a system whose effectiveness is based on a sequence
of operations leading to a result. Success is subject to conditions that must
be met; otherwise, the trader may suffer losses. Trading signals are generated
by the crossing of price and indicators of Ichimoku or as a result of indicators
crossing. Do not try to anticipate market reaction; use the signals generated
by Ichimoku.

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 THE BASICS OF ICHIMOKU

The functionalities of Ichimoku

The Ichimoku system consists of five indicators represented by curves like a
conventional moving average. Each of these curves is used to define entry and
exit points based on the history of financial stock. The indicators reflect simple
mathematical formulas based on the price and the number of periods. Here are
the six features of Ichimoku:
ˬˬ Illustration of equilibrium zones
ˬˬ Illustration of future zones of support
ˬˬ Illustration of future zones of resistance
ˬˬ Definition of reversal signals
ˬˬ Definition of entry and exit points
ˬˬ Definition of trend and momentum (strength of the trend)
Each indicator that crosses the price of a stock generates signals of different
intensities. Indicators should be seen as a whole, although the analysis of each
component remains essential. We can speak of a system that generates signals
to different degrees, the second signal coming to support the first with more
vigor. Indicators below the price are considered support areas. Indicators placed
above the price are seen as areas of resistance.
Of course, a new trader can easily use the Ichimoku system. Some argue that one
should put aside what is known about classical technical analysis before using
Ichimoku. I totally disagree. I remain open to the simultaneous use of a host
of tools to achieve my performance goals. The understanding of the notions of
support and resistance, the recognition of patterns, and the understanding of
divergences remains an undeniable asset.
Japanese candlestick enthusiasts will be pleased to learn that Ichimoku has
incorporated candlesticks as the main source of information. A candlestick is a
graphical representation of a transaction period, which may be a minute, hour, day,
or week. Moreover, the trader can rely on the organization of complex patterns
of Japanese candlesticks that predict certain market movements. Those with
basic knowledge of technical analysis will not be disoriented, as cross-averaging
and identification of support and resistance areas remain Ichimoku’s concepts.
Ichimoku decreases the risk of getting a false breakout, but the trader must wait
for strong signals before entering the market.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Equilibrium or trend
When analyzing the chart, the trader tries to determine if the time is right for
the investment. Bad evaluations of the beginning and end of the trend cause
the trader to make significant financial losses. Ichimoku allows, at a glance, to
analyze the past, look at the present situation, and see the future trend. All
thanks to the presence of three well-defined areas:
ˬˬ The bullish zone
ˬˬ The bearish zone
ˬˬ The equilibrium zone
To get there, Hosoda started from the very simple principle: a financial stock
has two states—equilibrium and trend.
Equilibrium. Markets are in equilibrium when the share price moves within
the lower and upper bounds of the area. Ichimoku’s indicator calculations are
based on different time horizons to generate the equilibrium zone nicknamed
the Cloud. To find the equilibrium point of a trading day, simply use the
corresponding candlestick and make the difference between the top and the
bottom of the day and divide the spread by two. The equilibrium point represents
the average of the variations in the share price. Hosoda considers the average
price at the closing of the markets, not the closing price.

Figure 1. Three zones–bearish, equilibrium, and bullish

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 THE BASICS OF ICHIMOKU

Figure 1 shows the centerpiece of the Ichimoku system presented in red and
green: the Cloud. Other indicators of Ichimoku are ignored. The Cloud represents
the equilibrium zone between buyers and sellers. The upper part of the chart
symbolizes the bullish zone, and the lower part symbolizes the bearish zone.
In a rising break-even situation, demand is stronger than supply; buyers take
control of the market. In a downward break, the supply is stronger than the
demand, which causes the share price to fall.
Trend. Markets are in the trend when the share price leaves the equilibrium
zone. When a rising stock crosses the top of the equilibrium zone, it means that
traders are banking on a rising market. This area will serve as support in the
future. When a falling price passes the bottom of an equilibrium zone, it means
that traders are banking on falling markets. This area will serve as resistance in
the future.

Figure 2. An Ichimoku chart

Figure 2 shows the components of Ichimoku for a stock during a downtrend. We

can distinguish between the three groups whose ends are represented by circles:
ˬˬ The first group on the left: a curve that looks like an oscillator. The end
of this curve ends before the other indicators.
ˬˬ The second group: the price is represented by Japanese candlesticks and
the short- and medium-term indicators. This group ends at the same time.
ˬˬ The third group on the right: the Cloud is formed by an upper curve and
a lower curve. This is the group with the farthest end.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Parallelism and perpendicularity are striking in this graph. Just to make your
mouth water: the cautious trader will invest when the price rises and passes
the red Cloud. To conclude, Ichimoku can be seen as a trend and anticipation
tracking system that invites the trader to move away from the equilibrium
zone. This is the ideal system for those who want to do more than spend their
days closely monitoring the financial markets. Signs of reversals are simple and
clear, and future obstructions are predictable. Ichimoku offers traders to be on
the right side of the market because the chances of winning are higher. The
balance, although it is better to avoid it, may show an uptrend, a downtrend,
or a neutral trend.

Advantages of Ichimoku
Learning Ichimoku can seem difficult because we leave the comfort zone
provided by Western technical indicators. These indicators have accustomed
us to focus on the present moment and to monitor the breaks of the share
price or the crossing of indicators. Ichimoku covers a much wider terrain.
Ichimoku contains relevant information, depending on market dynamics. After
a week, you will notice that the irritants of the departure will have completely
disappeared. Here are the advantages of using the Ichimoku system:
Anticipation. A few hours will be enough to anticipate the entry and exit
points. Shifting the Cloud to the right allows the trader to anticipate future
congestion zones (support and resistance).
The flexibility of time frame. Regardless of the desired time horizon (15
minutes, 1 hour, 1 day, or 1 week), Ichimoku will display the same quality of
information. Adjustment settings are not required when changing time frames.
This means that the charts are always read in the same way.
Functional on all financial markets. Ichimoku can adapt to any type
of market, such as cryptocurrency, stocks, indexes, or Forex. Examples are
presented in Chapter 10.
Simple formula. With Ichimoku, we are far from complex calculations to
generate indicators like RSI, MACD, or stochastic. The formulas are so simple
that you can apply the calculation directly to a stock chart.
The system is coherent. Unlike moving averages or other indicators, the trader
does not have to change the Ichimoku settings to adjust to market conditions.
Standard settings are 9-26-52 but remain adjustable.

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 THE BASICS OF ICHIMOKU

The system is autonomous. Ichimoku is effective and does not need to be

supported by other indicators. However, it is wise to validate your inputs and
outputs with other tools if in doubt.
The system uses Japanese candlesticks. Candlesticks alone are a good
source of information. Candlestick patterns show bullish or bearish setups that
predict short-term direction, regardless of the market.
The system shows the future zone of resistance. It’s easy to identify areas
of congestion that will slow down prices. The zone of resistance invites the
trader to leave the market or to anticipate a rebound toward the bottom.
The system shows the future zone of support. The trader can predict where
the reversals will occur during a downtrend. Short sale enthusiasts will close
transactions when the price reaches the support zone.
The system shows the busy areas for the past-present-future. This is the
only indicator that tracks the support and resistance zones so tightly. These
areas help predict price orientation.
The wait before the risk. An Ichimoku chart that shows a lot of distortions,
making it unreadable, tells the trader to stay on the sidelines and wait for an
opportune moment.
Gains come from trends. Equilibrium creates low profits because supply and
demand are at the same level. The trend indicates that supply or demand has
taken control of the market and is causing significant price fluctuations.
Alerts are generated at different power levels. The system generates short-
term signals that will be backed by higher-quality signals to reassure the trader
of the accuracy of the investment.
Simple strategies. The strategies are based on the sequence of simple signals
that leads the trader to take action. It only takes one, two, or three conditions
for a strategy to be viable.
Three-time horizons. Ichimoku includes three indicators or groups of
indicators to work with the past, present, and future information. No other
indicator offers this possibility.
Only one window for Ichimoku. Each traditional technical indicator like the
MACD or the RSI plays a different role in stock market analysis. Some indicators
focus on trend tracking, while others are used to assess market momentum.
Most of the indicators generate graphics with a multitude of windows that
occupy the entire surface of the screen and even more.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Ichimoku preview
Let’s use Facebook’s graph to become familiar with each of the components that
will be seen in detail in the following chapters. In Figure 3, the share price
represented by the Japanese candlesticks shows a strong downward trend since
the end of July. Facebook was one of the triggers of the crash of autumn 2018,
which started in early October for the majority of global indexes.

Figure 3. Curves and data of an Ichimoku chart

Notice the price that sinks below the Cloud at the beginning of August. Some
strategies indicate that as long as the price remains below the Cloud, Facebook
will be in bearish mode. The chart serves only as an introduction to help the
trader recognize Ichimoku components. At the top left, we see the settings
used for Ichimoku: 9-26-52. Next to it, we have the value of each indicator as
of the last period. Indicator data is presented in the following order:
ˬˬ Conversion Line
ˬˬ Base Line
ˬˬ Leading Span A
ˬˬ Leading Span B
ˬˬ Lagging Span

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 THE BASICS OF ICHIMOKU

Due to the mastery and constant use of the Ichimoku system, many users of
classical technical analysis are renouncing their traditional indicators. Do not
be surprised to see a significant improvement in your performance when you
strictly respect the signals generated by Ichimoku. Before using this system,
it is necessary to see the basic concepts of technical analysis essential for
all types of traders, short-term or long-term. These concepts will be useful
throughout the book.

Ichimoku chart providers

Most financial institutions and brokers already offer Ichimoku charts on
trading platforms. Some present it as an indicator, while others offer it as a
type of chart. In fact, it is abnormal that a modern institution does not offer
access to the Ichimoku that entered the West in the early 2000s. Here is a list of
Ichimoku graphical providers available on the web:
ˬˬ Coin360.com
ˬˬ CoinGecko.com
ˬˬ Coinmarketcap.com
ˬˬ Dailyfx.com
ˬˬ Finance.yahoo.com
ˬˬ Marketinout.com
ˬˬ Stockcharts.com
ˬˬ Tradingview.com

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ICHIMOKU CHARTING & TECHNICAL ANALYSIS

12
CHAPTER 2

The Basics of Technical Analysis

T
his chapter is for beginners who have no knowledge of technical analysis.
An overview of the various proper concepts, technical vocabulary, and
trading tools is required before diving headlong into a new method.
The purpose of this book is not to give up everything that has been written in
Western technical analysis for 50 years.

Evolution of stock charts

The graphical representation of the stock market indexes has evolved since the
creation of the Dow Jones index at the end of the 18th century. The index was
calculated manually and symbolized the average of 11 industrial stocks. The average
closing price was represented by one point. The union of points represented the
index, as you can see in Figure 4.

Figure 4. Linear chart

The linear chart is the simplest and least used financial chart for traders. In fact,
it only serves to present the evolution of the price over a very long period. Market
analysts at the time came to the conclusion that it was necessary to acquire

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

additional information for each trading day. Subsequently, the OHLC bar chart
comes into the picture and brings the emergence of investment strategies. An
open-high-low-close graph illustrates the price change for each period. A period
can be associated with different time frames: minute, hour, day, week, month, or
year. In Figure 5, you can see the Dow Jones data again, displaying an OHLC bar
chart. The price curve gives the impression to walk sawtooth.

Figure 5. OHLC bar chart

Each period is represented by a stick that includes a vertical bar and two
horizontal bars, as shown in Figure 6. Four values are compiled for each of the
bars: the top of the period, the closing, the opening, and the bottom of the
period. This is a significant advance compared to the single line because the
trader can see how a period ends, up or down. This information is beneficial for
planning the next trading session.

Figure 6. OHLC bars

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 THE BASICS OF TECHNICAL ANALYSIS

Markets have tamed the Japanese candlestick that appeared in the West in the
’90s. The candlestick was already used in Japan in the 18th century by rice
merchants. Once again, we come to raise the level of readability of the graphics.
Compared to the OHLC bar, the Japanese candlestick occupies more space in
width. Figure 7 covers the same interval as the bar chart, but the candlesticks
seem compressed.

Figure 7. Japanese candlestick chart

Each period is defined by a candle that combines a rectangle and a vertical line.
The rectangle is used to identify the price of opening and closing. The vertical line
is used to show the highest and lowest price of the period, as shown in Figure 8.

Figure 8. Japanese candlestick

In addition to the simplicity of reading Japanese candlesticks, there is an added

benefit: patterns. A pattern is one or more candlesticks that show a bullish or
bearish situation.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The various configurations of Japanese candlesticks make it possible to predict

the movements of the financial market, including:
ˬˬ Strengthening a bullish or bearish movement
ˬˬ Reaching a peak or a dip
ˬˬ Confirmation of a trend reversal
Thereafter, the Ichimoku system entered the West in the early 21st century,
adding several layers of information to the Japanese candlesticks already
present. This system has long occupied the whole place in the Asian markets.
Indicators like MACD and RSI are quite unknown in Japan. It is clear that the
tools used are not the same in the East and West.

Figure 9. Ichimoku chart

The Ichimoku chart of the Dow Jones, shown in Figure 9, shows the Japanese
candlestick price in more than five curves and a Cloud that changes color
according to the trend. All this is shown in a single information window which
occupies much less space than the charts using Western indicators.

Time frame and trading style

The same trader can keep a technology stock for a few hours while retaining a
blue chip for several months to balance his financial portfolio. Most traders use
the daily chart to analyze securities and determine when to buy or sell. This is
perfectly logical because most search tools are set to do the daily mode search.

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 THE BASICS OF TECHNICAL ANALYSIS

The trader who always uses the same strategy should take a look at the behavior
of the financial security in another time frame. For example, a trader wishing
to purchase a security after analyzing the daily chart should analyze the weekly
chart or the hourly chart.
The daily chart could show a pullback of the price, prompting the trader to sell,
while the weekly chart could present the beginning of a bullish trend, suggesting
to the trader to keep his positions longer than originally planned. The time
frames are varied: minutes (M), hours (H), days (D), or weeks (W). A 15-minute
graph will be denoted by M15, a 2-hour time frame will be denoted by H2, and
the daily and weekly time frames will be denoted by D1 and W1 respectively.
Previously, the only strategy was to buy and keep, hoping that the stock gives an
interesting gain. The analysis of the securities was reserved for the professionals
of the big banks. The arrival of the computer has led traders to refine their
methods and expand the range of trading styles. Generally speaking, there are
four main types of trading available to technical traders:
1. Scalp trading. A pure scalper retains his stocks from seconds to minutes.
He is riveted to his screen and takes advantage of market rises and falls to act
quickly. He enjoys working on smaller time frames like M1 or M5.
2. Day trading. The day trader buys and sells within the same day. He prefers
to sleep peacefully by not keeping any stock at the closing of the markets. The
same process starts again every morning.
3. Swing trading. Generally speaking, the swing trader takes advantage
of bullish or bearish trends and lets his gains run from a few days to a few
weeks. When there is a decline in markets, he reacts quickly and liquidates his
positions.
4. Position trading. The long-term investor does not seek thrills; he wants to
preserve his capital. He likes to invest in safe stocks and is willing to hold his
positions for months or years. He tends to analyze the long-term behavior of
stock market securities.
In my view, the trading style is of little importance because, despite the
refinement of methods, the ultimate goal remains the same: to make a profit.
The choice of a trading style is closely related to the holding time of the stocks
or cryptos. The next table shows different styles of trading, the time frame to
be preferred, and the average possession time.

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For example, a trader preferring to liquidate his positions each day should use a
time frame that oscillates between 15 and 60 minutes. Figure 10 exposes the
trader to different time frames:

Figure 10. Time frame in trading vs. time of possession

Except for the position trader that buys and holds for a long period of time,
all other styles require basic knowledge of technical analysis and some market
experience. The important thing is not the name given to a style of trading;
rather, a trader should be comfortable with a style that is his own and that will
yield profits.

Support and resistance

The terms “support” and “resistance” are the basic elements of technical analysis.
The trajectory of the price depends on the presence or absence of support and
resistance. The support refers to a past affluent zone, located below the price,
which serves as a barrier to the decline. Resistance refers to the congestion
zone of the past above the price that restrains the price from going higher. The
past impacts the future.

Figure 11. Support and resistance

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 THE BASICS OF TECHNICAL ANALYSIS

Figure 11 shows the price that walks within a lateral corridor and breaks
support to a second level. It looks like a stair-step pattern. The support of
the left zone is transformed into resistance that will eventually slow the
price increase. This figure is representative of the functioning of the price
that moves in shaping levels.
Each analysis of financial security must show support or resistance that may slow
or influence the price of the stock. The purchase of a stock offers more chances of
success in the absence of resistance above the price. Experienced traders selling
short will be very successful if there is no support below the price.

The market trend

The price of a stock, index, or value can move in three ways: up, down, or
sideways. Upward movements are slowed or blocked by a resistance zone,
and downward movements are slowed or hampered by a support zone.
Lateral movements occur in a period of consolidation while supply and
demand are in perfect harmony.
A bullish trend line, from bottom to top, must be drawn under the price. The
line serves as support. An uptrend reflects a high demand that pushes each
buyer to pay a little more for the coveted stock. A bearish trend line, from top
to bottom, must be drawn over the price curve. The line serves as resistance.
A downward trend reflects a high bid that pushes the seller to lower his price
to liquidate his shares. The absence of new buyers leads to weakness. A lateral
tendency occurs without overbidding between buyers and sellers.
The straight line is definitely the best tool to highlight a trend. Also, no
parameter or calculation is necessary. You just have to look and draw lines
in order to identify areas where there might be an upward or a downward
breakout. This is the simplest technique for determining future trend reversal
points and obviously one of the most underrated.
A trend line is considered significant when it links at least three points. Each
touch increases the validity of the trend. Only one line is needed to know the
exit point. We are not limited to drawing trend lines on the price. You can also
draw a trend line on a wide range of indicators such as Directional Movement
Index (DMI), Relative Strength Index (RSI), Simple Moving Average (SMA), or
Stochastic. Don’t forget to add the trend line to volume. Let’s take a closer look
at the behavior of the two straight lines during trend breaks.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

In Figure 12, the weekly chart of the video game company Electronic Arts shows
a long uptrend and a downtrend of shorter duration.

Figure 12. The trend lines

1. Downside breakout. The long red dotted diagonal is a bullish trend line
that serves as a support. The support line must be drawn below the price
curve. The square shows a sell signal triggered by the breaking of the support
area. The steeper the slope of the trend line, the shorter the duration. Chances
are excellent that the stock will rebound on one of the resistance zones placed
at a lower level. Breakdown is the break of support on which the price has
stumbled several times.
2. Upside breakout. The green and steep diagonal is a downtrend line that
serves as resistance. The resistance line must be drawn above the price curve.
The trader will have to wait for a candlestick to pass over the bearish trend to
enter the market. When buyers regain control, a breakout occurs and announces
a reversal. The circle indicates a buy signal triggered by breaking the resistance
line. An upside breakout is the break of strong resistance on which the price
stumbled several times.
By identifying the support and resistance thresholds, we can establish the next
breaks to occur. Most of the time, the validity of any break goes through an
increase in volume. The market makers will do everything to generate false
signals of breakout to get their hands on your stocks. It is common to see the
price make a brief incursion above resistance and, against all odds, make a
downward turn the next day.

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The importance of volume

The volume shows the trading activities of stock for a specific period. The
accumulation of these data makes it possible to identify trends or divergences
that are useful in technical analysis. Western traders have been accustomed to
seeing the volume as an essential element of technical analysis. Many traditional
indicators use volume as a source of information. The volume is particularly
interesting to get:
1. Breakout confirmation. An upside breakout must be accompanied by a
significant increase in the volume of transactions. This increase confirms the
trend reversal. The volume should be three to five times the average of the last
50 days when confirming a breakout. The rise of the volume is not required
when the market declines but is possible when panic takes hold of the markets.
2. Comparison between volume and average volume. This comparison
makes it possible to see the interest that investors place in a stock in a given
period. The increase in volume is often associated with good news about the
company or its industry.

Figure 13. The impact of the volume on the breakout above a resistance

Figure 13 shows the close relationship between volume and price progression
of 400% in a few days. The price broke the downtrend as well as the Cloud. But,
as incredible as it may seem, Hosoda ignored the volume when designing the
Ichimoku system. This system is essentially price-based, while many Western
indicators use volume as an input. Do not hesitate to incorporate volume and
other indicators that can confirm buy and sell signals. The volume should follow
a bullish trend; it is not necessary when the market declines.

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Chart patterns
Chart patterns present a disposition of the price that resembles a particular
form. The repetition of these figures for decades has made it possible to establish
a predisposition to a trend reversal or the continuation of the trend. Figure 14
shows the most popular bullish and bearish figures and, as a result, the most
active in the financial markets.

Figure 14. Popular chart patterns

The chart patterns show support and resistance. The break in resistance for
bullish figures confirms the upward trend. Breaking support for bears confirms
the downward trend. These patterns give a technical target equivalent to twice
the space between the support and the resistance. Targets are guideposts only.
Patterns are used to support buy or sell signals from the Ichimoku system or
other indicators.

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 THE BASICS OF TECHNICAL ANALYSIS

Leading and lagging indicators

There are more than 150 indicators for analyzing financial securities. Technical
analysis platforms regularly add new ones. Each indicator has its particularity
and uses different mathematical formulas. Here are some indicators grouped
under four main categories:
ˬˬ Trend indicators. These indicators measure the direction and strength
of a trend. These indicators can be used to compare the quality of signals
generated by the Ichimoku system. The most popular trend indicators
are the Directional Movement Index, Exponential Moving Average,
MACD, Simple Moving Average, Parabolic SAR, and SuperTrend.
ˬˬ Momentum indicators. Momentum measures how quickly prices
change over a period of time. The most popular momentum indicators
are the Commodity Channel Index CCI, Momentum, Rate of Roc,
Relative Strength Index RSI, and Williams Percent Range.
ˬˬ Volatility indicators. Volatility takes into account the change in
price relative to an average over a specified period. When prices change
rapidly, volatility is high. The most popular volatility indicators are
Average True Range, Bollinger Bands, Donchian Channels, and Keltner
Channels.
ˬˬ Volume indicators. Volume is a measure of the strength of the
trend based on the number of transactions. The most popular volume
indicators are Chaikin Money Flow, Force Index, Money Flow Index, On-
Balance Volume, Volume by Price, and Volume Profile.
In classical technical analysis, the categorization is interesting because it
encourages the trader not to be limited to a single category of indicators that
would trigger the same signals at the same time. Another form of classification
groups indicators into two groups: leading indicators and lagging indicators.
Leading indicators are proactive and react at the same time as stock prices. They
even give the impression of turning around before the stock price. They come
in the form of an oscillator that reacts to the slightest jolt of markets. Leading
indicators are stuck to market movements, regularly generating false signals.
Most of these indicators are oscillators that react nervously. They fall quickly
into overbought or oversold areas.

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The best leading indicators are:

ˬˬ Bollinger Bands
ˬˬ Chaikin Money Flow
ˬˬ Momentum
ˬˬ Relative Strength Index (RSI)
ˬˬ StochRSI
Lagging indicators are associated with the market trend. Lagging indicators
are slow to generate signals. This delay increases the quality of the signal but
decreases the window of opportunity to generate profits. Investors who do
not like risk should combine these indicators with Ichimoku. The best delayed
indicators are:
ˬˬ Directional Movement Index (DMI)
ˬˬ Exponential Moving Average (EMA)
ˬˬ Moving Average Convergence Divergence (MACD)
ˬˬ Simple Moving Average (SMA)
ˬˬ SuperTrend
Lagging indicators go hand in hand with the Ichimoku system that advocates
signal quality before speed. The Directional Movement Index and MACD
indicators respond fairly quickly and rarely provide bad signals. In order to keep
the focus on the analysis of the Ichimoku system, we will see in Chapter 8 how
to optimize its analysis with the help of lagging indicators.

Japanese candlestick patterns

We have seen previously that the Japanese candlesticks present a lot of
information on the variations of the price of each period. The combination
of several candlesticks makes it possible to predict a trend reversal or the
continuation of the trend. There are almost 50 different patterns, and Figure 15
presents an overview of the most popular Japanese candlestick patterns. There
are three groups of patterns:
ˬˬ 1. Bullish patterns
ˬˬ 2. Bearish patterns
ˬˬ 3. Indecision patterns

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 THE BASICS OF TECHNICAL ANALYSIS

Figure 15. Japanese candlestick patterns

The analysis and research of Japanese candlestick patterns are a complex and
demanding method with many figures. We must constantly call on our memory
capacity. The trader must constantly compare the patterns with a reference list.
This technique is in support of other methods or indicators. You should never
base an investment decision on a pattern of Japanese candlesticks. Always
validate the signals with other indicators. The Ichimoku system was built from
Japanese candlesticks. Both systems complement each other very well.

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Divergences
We are talking about divergence when two elements are confronted. A
difference of opinion between two people brings out positive and negative
points about a topic. In technical analysis, a divergence is a confrontation
between the price and an indicator or between two indicators. Figure 16 shows
positive and negative divergences between the price (the straight line) and an
indicator (the curve) such as Directional Movement Index, Chaikin Money
Flow, MACD, RSI, StochRSI, or even a moving average.

Figure 16. Examples of divergences

It is not recommended to use one of the Ichimoku indicators to detect

divergences. It is easier to use an additional indicator that will occupy another
window. The MACD indicator lends itself well to the game in addition to giving
excellent signals of trend reversals. The signals of the MACD indicator often
lead the signals launched by the Ichimoku.

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Emotional control
Anyone who embarks on trading will be looking for a miraculous solution
to generate profits quickly. The web is full of sellers who recommend new
sensational indicators or a new system developed by professional traders. Too
often, the trader tries to apply ways of doing things that bring no added value.
In fact, most of the proposed systems are functional. Rather, the user, for lack
of emotional control, ruins each transaction.
The better traders on the planet all have one thing in common: the perfect
control of their emotions. Like a robot, the professional is animated by the
mission to earn a few basic points, without more. His objectives are minimal,
but it is the regularity of the gain that sets him apart from the others. This is
understandable because he uses the same method as thousands of other traders.
So, how does he control his emotions? Discipline.

Figure 17. The cycle of market emotions

Understanding the cycle of market emotions invites the trader to pay attention
to his reactions to the market. The emotions experienced by a trader are
similar to the curve of a stock market that goes up and down, as you can see in
Figure 17. A stock rising for a long time leads the trader to want more and more,
bringing him into a euphoria that makes him lose all logic. This positive market
excitement reaches many beginners who take a stand while the professionals

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

are liquidating their shares. Conversely, the fall of a stock that never ends
brings the trader into a state of total discouragement that pushes him to sell
while the professional is ready to buy. Emotions cause the trader to go against
what should be done. Undoubtedly, this is the biggest frustration for the trader
to see the market rapidly reverse course after selling his shares.
The uninitiated seeks to be secure, which is what drives him to follow the
recommendations of investors on social networks. Traders must know that
the guru, who encourages many fanatics to follow him closely, is ready to sell
his recommendations to buy. Discipline requires never investing in a financial
stock until you have done an analysis.

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CHAPTER 3

The Components of Ichimoku

T
he Ichimoku Cloud comprises five indicators (curves), a two-color Cloud,
and the price curve. The price is presented in the form of Japanese
candlesticks. Candlesticks alone are considered a trading system, thanks
to the signals launched by its multiple patterns. I invite you to read books that
focus on Japanese candlesticks. Combining and mastering both systems is a
bonus. The uninitiated who wants to understand Ichimoku is confronted with
a lot of information:
ˬˬ The Ichimoku system has six components
ˬˬ The Ichimoku system generates several signals
ˬˬ The signal emitted by an indicator is of less value when the positions of
the other indicators are not considered
When analyzing Ichimoku charts, the trader must consider all the indicators.
An indicator may have a nice signal, but it will need additional validation before
committing itself. Strategies require the use of one or more conditions before
investing.

Distinguish alert from trading signal

Traders should not support their purchase decision on a single signal at the risk
of significant losses. We can closely monitor a stock whose volume has increased
considerably, but it is not a powerful trading signal. You need to know why the
volume has increased before taking action.

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To facilitate the learning of the Ichimoku system, let us distinguish an alert

from a trading signal:
The alert. An alert is a warning or trigger that leads to close market surveillance
from a positive perspective or following the threat of imminent danger. This is
the warning before the trading signal. The alert is rather weak because it neglects
the other indicators of Ichimoku. For example, the price that passes above an
indicator is an alert. When the shorter-term moving average moves above the
longer-term moving average, this is generally an alert. An ellipse will serve to
highlight the alert.

The trading signal. Consider for the purposes of this book that a trading
signal is obtained following the generation of several alerts. It can be a cross
of indicators, a cross between the price and an indicator, the discovery of
divergence, a chart pattern, or a pattern of Japanese candlesticks. Each trading
signal can have different levels: weak, neutral, or strong. The stronger the signal,
the faster the stock will trigger a bullish push. Three different symbols will be
used to identify a trading signal. A green circle symbolizes a buy signal. A blue
dotted circle indicates a false signal. A square means a sell signal. These signals
will be used after this chapter.

In this chapter, we will use the word Alert to not only assimilate the basics
of Ichimoku but to also see how essential it is to develop buying and selling
strategies. The development of strategies requires an understanding of the
Ichimoku indicators and also the basic concepts seen in the previous chapter.
An indicator is the result of a mathematical formula represented by the union
of points forming an ascending, descending, or sinuous curve. The formulas
proposed by Hosoda are simpler than some people suggest. No need to use a
calculator. These formulas can be applied directly to the charts.
Despite the simplicity of the Ichimoku system, understanding the expressions
will help the trader to better understand the role of each curve. The formula is
much more than a simple arithmetic expression; it is representative of the past,
the image of the present, and the projection of the future. Each indicator has a
particularity that differentiates it from others.

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 THE COMPONENTS OF ICHIMOKU

The six components of Ichimoku are: Conversion Line, Base Line, Leading
Span A, Leading Span B, Lagging Span and the Cloud, as shown by Figure 18.

Figure 18. The components of the Ichimoku Cloud

Some technical analysis and charting websites or books use Japanese labels
to identify components. To facilitate the understanding of Westerners, we
will mainly use the English language but the Japanese equivalence will also
be present in the stock charts. Each component will be analyzed in detail and
supported by graphics for ease of understanding. An icon is associated with
each curve to locate them more easily.

Conversion Line or Tenkan-Sen

The Conversion Line closely follows the share price. This is the most volatile
curve because the calculation period only spans nine periods. This curve often
evolves in stages, unlike a moving average that presents less distortion. This is
the fastest indicator; it is related to the present. The Conversion Line shows the
short-term trend that is either bullish, bearish, or in equilibrium. The first alert
goes through this indicator.
The Conversion Line reacts more quickly to changes in the stock price than a
simple moving average. In a bullish period, the Conversion Line serves as short-
term support. In a bearish period, the Conversion Line serves as short-term
resistance. Any breakout represents a trend reversal in the short term. The
trader should not consider this indicator alone, as false signals are common.

The formula for the Conversion Line

The calculation of the Conversion Line requires only two data located at the
ends of the last nine periods: the highest and the lowest values. The Conversion
Line (blue line) is the midpoint of the last nine periods. See Figure 19.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Figure 19. The formula of the Conversion Line

The Conversion Line can be compared to a 9-period moving average, except

that the calculation of a moving average is based on the sum of closing prices.
This is what makes the moving average smoother than Ichimoku indicators that
regularly show various levels that serve as support and resistance.

How to determine the value of the Conversion Line

Just draw a rectangle that frames the highest and lowest of the last nine trading
periods and trace a horizontal line in the center, as you can see in Figure 20.
This value shows the point of equilibrium between the top and bottom of the
last nine periods. The next day, it will be enough to shift the rectangle one
period and determine the top and bottom of the last nine periods.

Figure 20. Calculation of Conversion Line on a chart

The AngloGold company chart shows the price moving above the Conversion
Line up a few times. For the moment, we consider that these are merely alerts
because we deliberately abstract the other indicators.

Alert of the Conversion Line

This type of alert is common and should not be considered a buy signal. This is
the weakest signal of Ichimoku. Why? The indicator bases its calculation on too
short a period, which affects the reliability of the signal. See Figure 21.

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Figure 21. Alert at the intersection of the price and the Conversion Line

For the trader who wants to open a long position, we must monitor stocks that
are in a falling trend. Sooner or later, the Conversion Line will turn up. The price
that will cross the Conversion Line will send the message that a trend reversal
will occur soon.

Figure 22. Price crosses over the Conversion Line

The stock of Nvidia shows three alerts where we can see the price breaking across
the Conversion Line, as you can see in Figure 22. The trader investing in early
November, following the first alert, would have suffered a significant loss. The
investment must be in the same direction as the trend. For now, the trend is
down. It’s not time to buy; it’s time to sell or initiate a short sale.
The day after the second alert, the price comes up against the Base Line, which
serves as resistance. The third alert needs reinforcement to encourage the trader
to enter this volatile market. Patience will be necessary to await confirmation.
Investing in the simple cross Price/Conversion Line carries a big risk, especially
when the Conversion Line is down.

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Base Line or Kijun-Sen

The Base Line is a medium-term trend indicator. It is related to the present.
The Base Line is comparable to a 26-period moving average. The impact of the
26 periods increases the reliability of the signals and forges the support and
resistance zones. The Base Line forms levels longer than those of the Conversion
Line. In a bullish period, the Base Line serves as medium-term support. In a
bearish period, the Base Line serves as medium-term resistance. The Base Line
offers better support/resistance than the Conversion Line because the duration
of the period is more significant. Any breakout is the confirmation of a trend
reversal in the medium-term.

The formula for the Base Line

As shown in Figure 23, the Base Line is built in the same way as the Conversion
Line. The Base Line (red line) is the midpoint of the last 26 periods.

Figure 23. The formula of the Base Line

How to determine the value of the Base Line

Just draw a rectangle that frames the highest and lowest of the last 26 trading
periods and trace a horizontal line right through the center. This value
corresponds to the equilibrium point in Figure 24.

Figure 24. Calculation of the Base Line on a chart

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 THE COMPONENTS OF ICHIMOKU

Alert–Price/Base Line cross

The Base Line is built around 26 periods. This means that it will take more force
for the price to cross the Base Line. Once again, we are watching the end of the
downtrend. The price that overturns and crosses over the Base Line adds a solid
base to a trend reversal. Figure 25 describes this.

Figure 25. Price/Base Line alert

The alert needs a higher-level confirmation to encourage the trader to acquire

the security. Again, let’s use Nvidia’s chart, which has been in free fall–since the
beginning of October. The price drops below the Base Line and the speed of fall
increases. There is a slowdown at the end of December. The selling is overdue.

Figure 26. Alert when the price goes over the Base Line

As shown in Figure 26, in mid-January 2019, the price passes above the Base
Line; it is not an alert. Why? The Base Line is not pointing upward. You must
validate this false alert with another indicator.

Alert–Conversion Line/Base Line cross

The Conversion Line and the Base Line look like the crossing of two moving
averages of 9 and 26 periods. This is probably the most powerful alert. Many
traders use this alert to initiate a transaction. The trader anticipates a purchase
when the Conversion Line passes above the Base Line. The trader anticipates a

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

sale when the Base Line passes above the Conversion Line. See Figure 27. These
curves form horizontal levels and represent areas of support and resistance
that influence the formation of the Cloud on the right.

Figure 27. Conversion Line/Base Line alert

The Conversion Line and the Base Line show a delay between the evolution of
their curves and that of prices. When prices fall, the indicator will continue to
rise for a few periods. When the price rises, the indicator will continue to go
down. The degree of the slope of the Conversion Line and the Base Line helps to
determine the strength of the trend. The steeper the slope indicators, the
stronger the trend. A glance can detect a sign of breathlessness and, by the
same, a potential trend reversal.

Figure 28. Alert when Conversion Line goes over the Base Line

An alert Price/Base Line and an alert Conversion Line/Base Line are often
generated at the same time. To see for yourself, let’s use the same Nvidia chart.
The Conversion Line/Base Line crossing occurs at the same time as the Price/
Base Line crossing. Although the Price/Base Line combination is recognized as
an Ichimoku strategy, I much prefer to consider the Conversion Line/Base Line
crossover.

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 THE COMPONENTS OF ICHIMOKU

Leading Span A or Senkou Span A

The Leading Span A is in symbiosis with the Leading Span B. These two curves will
form the Cloud that we will see later. The Leading Span A represents a medium-
term support zone when the share price is above and displays a medium-term
resistance zone when the price is below. The breakout of Leading Span A by the
stock price will send an alert to act or monitor the market more closely.

The formula for the Leading Span A

Leading Span A (green line) corresponds to the central point between the last
value of the Conversion Line and the Base Line. This means looking for the
equilibrium point between the Conversion Line (short-term) and the Base Line
(medium-term). The result is projected forward by 26 periods. See Figure 29.

Figure 29. The formula of the Leading Span A

How to determine the value of the Leading Span A

Just draw a rectangle that joins the Conversion Line and the Base Line and
projects the center 26 periods into the future as shown in Figure 30. We get the
point of equilibrium between the two indicators we saw previously. The
equilibrium of the past shapes the equilibrium of the future.

Figure 30. Calculation of the Leading Span A on chart

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Leading Span B or Senkou Span B

The Leading Span B goes hand in hand with the Leading Span A. The Leading
Span B illustrates the support zone if the share price is above and represents a
resistance zone if the price is below. This is the strongest and slowest curve of the
Ichimoku system because the calculation is based on 52 periods. The breakout of
the Leading Span B by the price confirms the trend reversal for the long-term.

The formula for the Leading Span B

The Leading Span B (light red line) corresponds to the middle of the range
between the top and the bottom of the last 52 periods. The result is projected
ahead of 26 periods. This means that this curve works over a time horizon of
78 (52 + 26) periods. The Leading Span B generates long horizontal landings
that show the best support and resistance areas for Ichimoku. The price that is
stopped by this line is likely to rebound and make a trend reversal. Figure 31
shows the formula.

Figure 31. The formula of the Leading Span B

How to determine the value of the Leading Span B

Simply draw a rectangle that frames the highest and lowest of the last 52 trading
periods and projects the center 26 periods into the future as shown in Figure 32.

Figure 32. Calculation of the Leading Span B on a chart

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 THE COMPONENTS OF ICHIMOKU

Alert–Leading Span Cross

Leading Span curves play the same role as moving averages; they serve as
triggers. The two Leading Span curves are shifted in the future (to the right) by
26 periods and serve to signal a long-term trend reversal. These curves are
similar to moving averages at 17 and 52 periods. See Figure 33.

Figure 33. Alert when the Leading Span A crosses the Leading Span B

The Leading Span A and Leading Span B each represents the top and bottom of
the projected equilibrium zone in the future. The crossing of the Leading Spans
informs the trader of an upcoming change in the trend. When the Leading
Span A crosses above the Leading Span B, the trend is bullish. Otherwise, the
trend is bearish.

Figure 34. Alert on the chart when the Leading Span A crosses the Leading Span B

The Morgan Stanley chart, Figure 34, shows two so-called Twist alerts at the
intersection of Cloud color changes. Let’s not forget that the alerts are staggered
in the future, and we have to go back 26 periods to identify the current price.
The first alert, at the end of February 2017, shows the Leading Span A passing
above Leading Span B. The Cloud changes from red to green. This confirms the
upward trend. The second alert, at the end of January 2019, shows the Leading
Span B passing above Leading Span A. The Cloud that changes from green to red
means a downward trend alert.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The Leading Span A is the fast Leading Span. If we consider both Leading
Spans as a set, we can certify that the Leading Span A triggers alerts faster. It
determines the amplitude of the Cloud or, if you prefer, the thickness of the
equilibrium zone.

Lagging Span or Chikou Span

The Lagging Span is the indicator that traders leave aside, either because they
do not understand its usefulness or because they are based on bad information.
The term “lagging” means delayed or shifted to the past. The Lagging Span is a
replica of the closing price of a stock that is shifted by 26 periods in the past.
The indicator makes it possible to relate current prices, past prices, as well as
past indicators.
Figure 35 shows on the right the current price represented by a brown line
instead of Japanese candlesticks. The Lagging Span, shown in green, is identical
to the price curve. The lag of 26 periods in the past will be used to make
comparisons between price and other indicators at this precise time.

Figure 35. The Lagging Span indicator is the replica of the price

Let’s highlight the past-present-future relationship. Current prices are a replica

of past prices. Past price influences future areas of congestion and turbulence.
The Lagging Span is used to relate the current price of the key areas of support
and resistance past, which influenced the trend or led to a reversal of the trend.
The Lagging Span must be compared with a vertical axis, not a horizontal axis,
as we can see in Figure 36.

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 THE COMPONENTS OF ICHIMOKU

Figure 36. Vertical comparison between Lagging Span and other indicators

The Lagging Span must be compared with the price and the other indicators (the
Conversion Line, the Base Line, and the Leading Spans A and B) that are in the
same period, above or below. When the Lagging Span passes above the price,
the Base Line, and the Cloud, this reinforces the upward trend of the current
price. Conversely, when the Lagging Span passes below the price and below the
other indicators, it reinforces the downward trend of the current price.

Lagging Span is a signal confirmation tool

A comparison between the current price and the 26th previous period is useful
to confirm that the trend is bullish or bearish. It is best if the Lagging Span is
positioned where it does not conflict with other indicators. One should avoid
making a purchase when the Lagging Span conflicts with the stock price or
with the Cloud. It is a situation of instability where the trend is unpredictable.
A Lagging Span that has a free field does not mean that the price will go up
forever. Bad economic news or bad financial results will have a major impact
on the price, which will reverse—not to mention the many traders who will
want to take their profits.

The formula for the Lagging Span

There is no mathematical formula for the Lagging Span indicator (dark green
line) because it is identical to the closing price curve. It is a copy-pasted price
that is shifted 26 periods backward. During analysis, it is useless to compare
the data between these two curves.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Figure 37. The formula of the Lagging Span

The Lagging Span is easily identified when the share price rises and falls, as the
Lagging Span is parallel to the share price. Just take a look at the price and move
your eyes to the left. Figure 36 shows the example of a perfectly positioned
Lagging Span projecting a very strong bullish signal. We will see later that this
is one of the strategies to favor.

Alert of the Lagging Span

The Lagging Span acts as a benchmark against the price and other indicators of
the 26th period preceding the last price. When this signal is in a congestion
zone, we do not compromise. In an ideal situation like Figure 36, the Lagging
Span is isolated from other indicators. This is a configuration to look for.

Figure 38. Alert when the Lagging Span crosses price

Figure 39 shows the chart of the Roku company. The Lagging Span indicator is
positioned as suggested by the alert.

Figure 39. Alert on the chart when the Lagging Span crosses price

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 THE COMPONENTS OF ICHIMOKU

The Lagging Span is well above the price of the 26th previous period. This signal
is not strong enough for the trader who wants to enter the market because the
current price is positioned just below the Cloud, which shades the configuration.
Other confirmations will have to be made before entering the market. We will
see later in Chapter 5, which deals with strategies, that the Lagging Span is
the ultimate confirmation tool to support other signals emitted by the system.
The Lagging Span reassures investors who are afraid to enter the market too
quickly. This indicator sends the message: “You can go there; the road is clear!”

Cloud or Kumo
The Cloud corresponds to the space between Leading Span A and Leading Span B.
Like any trend indicator, the Cloud reacts late compared to the Conversion Line
and the Base Line. The Cloud is projected 26 periods to the future and reflects
the market’s equilibrium zone. Why? Hosoda realized that the previous zones of
equilibrium influenced the price of the next periods. Cloud is the area where we
should not initiate transactions; it is a zone of indecision.

Cloud interpretation
Cloud is a useful and necessary element for the confirmation of many signals.
It is also the area in which we must avoid trading. The Cloud provides a lot of
information about financial markets, including:
ˬˬ The equilibrium zone. This is the region where buyers and sellers
agree. The price inside the Cloud is in a balanced market where it is
difficult to make substantial profits.
ˬˬ The direction of the trend. A Cloud rising from left to right indicates
an uptrend. A Cloud that goes down from left to right indicates a
downtrend.
ˬˬ The support zone. When the price is trending up above the Cloud, the
top of the Cloud represents the first support area. The bottom of the
Cloud represents the second support area.
ˬˬ The resistance zone. When the price is in a bearish trend below the
Cloud, the bottom of the Cloud represents the first zone of resistance.
The top of the Cloud reveals the second zone of resistance.
ˬˬ Buy and sell signals. The break of the Cloud by the price sends a strong
signal that this is the right moment to complete a transaction.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

ˬˬ Momentum or the trend strength. A steeply sloping Cloud means

that the stock price has excellent momentum. Conversely, a low-slope
Cloud indicates a neutral trend.
ˬˬ The thickness of the Cloud. The Cloud fluctuates in thickness
according to the periods, and it reflects the current and past volatility
of the price. Low volatility generates a thin Cloud. High volatility in the
market will produce a thick Cloud, clearly upward or downward. The
considerable thickness of the Cloud will block access or slow the price.
ˬˬ Extrapolation of the Cloud. The projection in the future is a replica of
current market movements. This replica creates future areas of support
and resistance.
ˬˬ Twist. We associate the color change of the Cloud with the future
change of the trend. It will be used as a confirmation tool to deal in
different markets. A combination like a Twist and price that breaks
resistance should be watched closely.
The use of the Cloud often eradicates the need to draw lines of support and
resistance. A point not to be overlooked: pros prefer to sell stocks at the
approach of a huge Cloud rather than be stubborn with a stock that stands still.

Alert–Cloud/Price Cross
An alert is generated when the Cloud is crossed by the price curve. Cloud is
perceived as a support zone when the stock price is above. Cloud is perceived as a
zone of resistance when the price is below. The stock is considered a disturbance
zone or a pending zone when it is inside the Cloud. See Figure 40.

Figure 40. Alert Cloud/Price cross

One question probably comes to mind: “What is the difference between

Leading Spans and Cloud?” At first glance, we are talking about the same
thing. However, there is a small distinction to make. The Cloud markers
represented by the Leading Spans are the best support and resistance areas of
the Ichimoku system.

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 THE COMPONENTS OF ICHIMOKU

Figure 41. Cloud acts as resistance

The chart of Robert Half, seen in Figure 41, shows a price which is climbing
until the end of August and which turns down thereafter. Keep the focus on
the Cloud and ignore other indicators to focus on the basic signals. The price
dropped into the Cloud in mid-September. Three or four days later, the price
strikes the bottom of the Cloud that serves as resistance.
In October, the fall of the stock accelerates. In early December and mid-
January, the price is again at the bottom of the Cloud. Two failed attempts
of a reversal to the rise, the resistance is present. Like all resistance, it will
eventually fade. New buyers will show up and replace the sellers who have just
given up their places.
The Cloud is an extraordinary tool that allows the trader to predict the right
moment to enter and leave the market. There is no 100% guarantee that a bullish
stock will crash on the Cloud and start going down again. However, it is likely
that the Cloud will slow the stock race. Following his studies, Hosoda came to
the conclusion that congestion zones tend to return to levels previously tested.
A support zone or a resistance zone moves substantially at the same regularity
as the stock price. At the same time, Hosoda wanted traders to become aware
of sensitive areas by putting the Cloud forward so it is still in the sight of the
trader. The Cloud is so important in the system that we could put all the other
indicators aside. Cloud breaks by the price could be enough to generate signals.

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Ichimoku principles
Here are some useful principles related to the use of Ichimoku during my last
years of trading:
ˬˬ An alert is a cross between indicators or a cross between an indicator
and the price.
ˬˬ A trading signal corresponds to an alert supported by several conditions.
ˬˬ The Conversion Line is the weakest form of support and short-term
resistance.
ˬˬ The Base Line serves as support and resistance for the medium-term.
ˬˬ The Conversion Line and the Base Line form a group of indicators.
ˬˬ Bullish sentiment is in place when the Conversion Line passes above the
Base Line.
ˬˬ Bearish sentiment is in place when the Base Line passes above the
Conversion Line.
ˬˬ Leading Span A and Leading Span B form a group shifted by 26 periods
to the right of the stock price.
ˬˬ The Lagging Span curve is the replica of the stock price shifted to the
left by 26 periods. This curve is used to make comparisons with other
indicators in the same period.
ˬˬ The Cloud is green or red. The Cloud is green when Leading Span A
passes above Leading Span B. The Cloud is red when the Leading Span B
passes above Leading Span A.
ˬˬ The price that passes above the Cloud sends a bullish signal.
ˬˬ The price that goes below the Cloud sends a bearish signal.
ˬˬ The price located in the Cloud sends a neutral signal.
ˬˬ A thick Cloud shows a high level of volatility; the trend is accelerating.
ˬˬ A thin Cloud indicates a fragile trend.
ˬˬ The change of color of the Cloud indicates a trend reversal to come.

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CHAPTER 4

Interpretation of the Ichimoku System

M
any traders will tell you that Ichimoku is complex and difficult to read.
This is not true! The Ichimoku is full of information, and after some
analyses, the reader will quickly differentiate each of the curves. Just
take the time to understand the role of each indicator. After a few visualizations
of charts, you will master most of the alerts and signals generated by Ichimoku.
Before diving into trading strategies, we need to clarify some elements to
have the perfect mastery of Ichimoku. There is a need to go beyond the
indicators to ensure that the full potential of technical analysis is used. The
quality of the interpretation of the various configurations will have a direct
influence on your profits.

A curious chart
Reading charts may seem simpler when using classic indicators like MACD.
Why? Most of the time, the signals are aligned on the same period as
the price. Just identify the last price and look up to identify the signals
generated by the other indicators. Subsequently, the trader analyzes each
of the signals that, triggered simultaneously, will provide a clear indication
of a major event to be considered.
Ichimoku requires a completely different reading, which causes many beginners
to abandon it. Ichimoku reading is unmistakable because the indicator’s
alignment structure is uneven. The trader who analyzes the last price of a chart
will have few problems in locating the indicators. The future Cloud is placed
26 periods forward, and the Lagging Span is placed 26 periods backward. This
means that these two indicators cover 52 periods.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The classic indicator chart in Figure 42 shows that Superior Drilling Products
exploded in early September, gaining more than 50% in a few periods. Previously,
three traditional indicators had launched an alert. However, it was necessary to
wait for the price to break the resistance represented by the horizontal line
before entering the market.

Figure 42. A classic analysis of an upside breakout

Let’s use the same stock as before but apply the Ichimoku indicators. The green
circle highlights the buy signal generated on September 8th. The difficulty is
greater when one wants to analyze a period located in the heart of the chart,
which does not represent the last day of trading. The trader should capture and
annotate the chart like the Figure 43.

Figure 43. Ichimoku analysis of an upside breakout

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 INTERPRETATION OF THE ICHIMOKU SYSTEM

If one wishes to obtain the value of the corresponding Lagging Span, one has
to go back 26 periods. Same tip for the Cloud; we advance 26 periods. Using
a reference point of September 8th, the Cloud will end on October 12th. The
Conversion Line and the Base Line end at the same time as the price. You have
to be careful with the analyses that do not consider the feedback process to be
done with the Lagging Span and the projection for the Cloud.
The web is filled with bad analyses that do not take into account the reference
point. The reading of the Lagging Span must not be done above the current
price. I repeat, “The reading of the Lagging Span must not be done above the
current price.” Ditto for the future value of the Cloud; it must be shifted to the
right by 26 periods.

The clarity of the curves

The Ichimoku chart may seem bogged down on occasion when other indicators
are added in the same window as the Ichimoku window. Some indicators,
such as the RSI, the MACD, or the Chaikin Money Flow, have their own
window, which makes it necessary to produce longer charts. Figure 44 shows
in detail each component of Ichimoku. Note that the opacity of the stock
price (Japanese candlesticks) was reduced to emphasize the indicators. The
symbols for each of the components are placed at the bottom of the graph to
make the link between the indicator and its final value, appearing in the
upper left corner.

Figure 44. The relationship between curves and reading data

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Let’s use the Conversion Line as an example. The Conversion Line, associated
with the blue color, has a value of $269.15. In order to validate this value, a
dotted line was placed to the right of the Conversion Line termination, which
also gives $269.15. Figure 44 shows clearly defined trend corridors. In fact,
when it is easy to read a chart and locate each of the curves, the stock is an
excellent candidate for trading. A chart whose reading is difficult like the
Figure 45 illustrates a real trap that is best avoided. The price shows too much
variation for each trading period.

Figure 45. Distortion of a low-volume financial security

Notice how difficult it is to follow indicators that constantly cross the price.
The Lagging Span intertwines too often with the price and other indicators. It
is impossible to identify a single strong signal. Usually, it is the low volume of
transactions that will generate such graphics. The Yipi company chart shows
an average volume of 13,746 traded shares per day in the last 50 days. It is
clearly insufficient!
The low volume and even the lack of volume for some days prevent the development
of a healthy trend. Buyers control the market for a day. The next day, it is the turn
of the sellers to have full control. Avoid these pitfalls, as seasoned traders will take
control and drive prices down. Favor financial titles that offer more than 300,000
units per day, or even 500,000 units per day. If you want to get into this type of
financial stock at all costs, make sure to get out before the close of the session.

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Number theory
Hosoda had a good idea of the concept he wanted to put in place. He had to
determine the components that would be part of the model: simply some
numbers. Following numerous tests based on Japanese stock prices, he
developed a series of numbers where the period had given a trend reversal on
financial markets. The sequence of numbers is:
9, 17, 26, 33, 42, 65, 76, 129, 172, 257

The number nine serves as a basis for the calculations of the numerical sequence.
The numbers 9 and 26 are represented in the settings of the Ichimoku chart.
The other numbers in the sequence are combinations of the first three. Hosoda
completed the Ichimoku settings using the number 52, which is twice the
number 26. The original system settings are based on three numbers: 9, 26, and
52. These numbers must be associated with periods, not days, because they can
be used for any time frame.
ˬˬ Number 9. This number is associated with the short-term cycle.
ˬˬ Number 26. This number is associated with the medium-term horizon.
ˬˬ Number 52. This number is associated with the long-term cycle and
represents twice the medium-term horizon.
In the past, Japan had six trading days a week because markets were open on
Saturdays. By the best of luck, one month was 26 trading days, and two months
was 52 days. Asian markets have adjusted to the 5-days-a-week Western calendar.
The settings used at the time by Hosoda remain effective today. The trader has
the opportunity to adjust the settings, but he must understand that the risk of
false signals will increase if the adjustment is made downward. Many believe
that Goichi Hosoda voluntarily adjusted these settings to those of trading days.
Rather, I believe that the thousands of tests conducted determined that the
numbers 9, 26, and 52 were the optimal parameters to consider when setting
up the system.
A trading cycle is divided into two parts: the bullish part and the bearish part.
In an ideal context, the bullish and the bearish portions have a similar duration.
However, the reality is different. Given the stock market environment, the
downside could be longer than the upside. The crash of autumn 2018 is a good
example; there were very few bullish days from the beginning of October. An
average is used to highlight the median value of the prices for a specific duration.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The average serves as a guide and signals a danger when the price of the stock
moves too far from the equilibrium zone. With his formulas, Hosoda sought to
determine the equilibrium point between the highest and the lowest of each cycle.

Figure 46. The theory of the long-term trading cycle

For example, in Figure 46, the equilibrium is maintained for a 52-period cycle,
as long as the price moves within the top and bottom of the previous 52 periods.
Any exit outside the top or bottom means that the equilibrium is broken.

Three time zones

Ichimoku is the only indicator that displays information over three-time
horizons. The six components display information about the past, present, and
future. The investor has a detailed portrait of the situation; it only takes a few
seconds to identify the three areas. See Figure 47.

Figure 47. Three-time zones

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The past is associated with the Lagging Span; the Conversion Line and the Base
Line indicate the present; and the future is represented by the Leading Span A,
Leading Span B, and Cloud. Most of the time, the zones have an upward or
downward slope.

Figure 48. Three horizons of time on the chart

As you can see in Figure 48, the chart shows three corridors associated with
different time horizons. The past, located at the left of the price, is associated with
the Lagging Span. The present, illustrated by the central corridor, is associated
with the Conversion Line, the Base Line, and the price. The future, located on the
right, is represented by the Cloud. Ichimoku provides a lot more information,
and this is its strength. This allows the trader to better plan market outflows.
Professionals tend to liquidate their positions faster because they know full well
that resistance will block the price. The pro does not want to know where the
price will be in two weeks. He is rather concerned about closing his positions
quickly, often before the end of the day.

The mysterious Cloud

An official breakout occurs when the stock price breaks the equilibrium zone
revealed by the Cloud. The right evaluation of the support and resistance zones
prevents the trader from seeing unexpected pullbacks. The price of a financial
title contains an uninterrupted series of highs and lows that become alternately
support and resistance. An area serves as a support when the price is located
above. The support is associated with the level where the buyers are numerous,
preventing, at the same time, the stock from falling.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The price of a stock that smashes a support zone will stop at the next support
zone, which will break again when buyers’ craze disappears, limiting demand
and causing downward pressure. An area serves as resistance when the price is
below. Resistance represents the level at which sellers control the game and
prevent the onset of a rise. In the event that the resistance is broken up, the next
target will be the higher resistance. Let’s look at some important elements of the
Wynn Resorts company’s chart, in Figure 49. The number refer to the Figure.

Figure 49. Different levels of support and resistance

1. The price is based on the green Cloud. The start of the creation of this
support zone dates back to November 2017. The repeated stops have solidified
support. The buyers are numerous, and they push the stock to a higher level.
2. The price is based on the red Cloud. This support has been shaped since
the end of January. It is an area where the price makes regular pullbacks. The
Cloud plays its role, and the price bounces several times.
3. Last zone of support. It is the Conversion Line and the Base Line that
serve as support for this zone. However, the green Cloud has come to make an
incursion in this sector. The support will last a short time because the market
is reversed. The stock had gained nearly 50% in less than six months; traders
realized that the rise could not last forever.
4. Pullback of the price in June. The price makes a pullback exactly in the
same place as in point #2. It makes perfect sense. The price leaps in an area that
reached consensus in April.

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5. Pullback of the price in August. The price retreats to the same place as in
point #1, despite the fact that it has been nearly six months. The price moves
in stages; March support is viable. The Conversion Line and the Base Line
slow down the decline of the stock. The Cloud on the right will be resistance
to overcome when the stock has finished its decline. Unless the Cloud clearly
shows the areas of support and resistance, each analysis will have to show
these levels in order to plan the inputs and outputs. Adding rows may be
necessary to specify these areas. The price of a financial security is continually
under pressure from buyers and sellers.

Fibonacci numbers
Analysis with Ichimoku is a subjective technique in the same way as other
technical indicators. No theory can predict with certainty the attainment of a
target. No technique can take into account all the socio-economic factors that
will influence the price of any financial security. Think about the interest rate,
currency war, central banks, the rate of inflation, or even the social networks
that peddle a tide of “fake news.”
The evolution of a financial security comes in two forms: balance and trend.
Inside one of its forms, the price evolves in a sawtooth, forging zones of support
and resistance. The height of movements and rebounds varies according to the
craze of traders. A rise will always be counterbalanced by a fall in the markets.
For example, a decline could last six days, while the next increase could last only
three days.
Sooner or later, those who bought at low prices will want to cash their profits,
which will cause a dip in prices. The trader can use different tools to make
projections. The numerical sequence developed by Leonardo Fibonacci has
allowed the creation of many techniques: Fibonacci retracements, the Fibonacci
arc, and the Fibonacci time zone. The Fibonacci sequence is as follows:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...

Of Italian origin, Leonardo of Pisa was a mathematician who lived in the 13th
century. He developed the Fibonacci sequence characterized by the fact that
each number from the third is the sum of the two preceding numbers. It follows
a rule. The ratio of two successive numbers that are part of the Fibonacci
sequence will give approximately the same result at 1.618. For example, the
ratio of 144 to 89 equals 1.618.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

This ratio is used in many disciplines: architecture, visual arts, film, and
television. Why? The artist or creator who uses the principles of Fibonacci will
provide a work that respects the natural distribution, pleasant to contemplate.
The Fibonacci sequence has led to the emergence of a host of concepts that are
used, among other things, to plan the construction of castles and cathedrals.
And a thousand years later, it is used for trading.
The most popular tool is undoubtedly the Fibonacci retracements used to project
the amplitude of the bullish or bearish pullbacks. Retracements are short-term
fixes that go in the opposite direction of the trend. Retracements do not change
the direction of the general trend as shown in Figure 50.
Considering that a stock never rises in a straight line, you have to know how to
take advantage of the retracements that take place in areas of support and
resistance. The retracements are caused by previous buyers who have decided to
take their profits, putting downward pressure on prices. Subsequently, new
buyers come onto the market and push the stock up. The tool allows you to
project the levels of support and resistance on which the price could rebound.
The model is purely mathematical.

Figure 50. Fibonacci retracements

Fibonacci retracements can help to place Stop Orders in the support areas in
case of a purchase or above the resistance zones in the case of a short sale.
Using key Fibonacci levels such as 38.2%, 50%, and 68.2%, the trader will be
able to identify potential targets or pullbacks.

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Protection against losses

Stock price takes the form of a staircase, where each of the steps represents the
fight between buyers and sellers. If one of the opponents wins over the other, it
is possible that this creates fluctuations that are out of the ordinary. One way to
protect your profits is to place a Stop Order. This order is executed to protect
against the sudden fluctuation of markets.
When you want to buy a stock, you can use the Stop protection to protect
against a pullback of the price. In a situation of downward speculation, it is
possible to use a stop protection order to protect against a surge. Many pros
are reluctant to use Stop Protection Orders. Why? Stop protection orders
should not be too close to the price, as the financial sharks will do anything to
trigger them. Vultures know that a Stop will be placed within 5% of support
or resistance. The stocks will be captured at a discount, and the price will
return in the same direction as you originally planned.

Figure 51. Where to set a Stop loss protection

Figure 51 shows how to place a Stop in a short sale situation and another when
you want to go long. These orders are passed after opening a position. They are
called “trailing stop” and can be moved to keep them close to the price. In a short
sale situation, the order must be placed above the resistance threshold to protect
against an upward reversal. When one wishes to go long, one places the Stop
Order below the support zone to protect oneself from a bearish reversal.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The benefits of a Stop Order are:

ˬˬ No need to be permanently connected to the markets
ˬˬ Losses are limited in the event of a change of trajectory
ˬˬ Profits are secure
ˬˬ Ability to move order and extend profit
The Ichimoku system offers the possibility to place a Stop using the Cloud as
support or resistance. Since the Cloud tells us about congestion areas, why
not take advantage of this information to place a protection stop? Some
advocate positioning under the candlestick that produced the breakout;
others prefer to use the Cloud. Each situation is different; you have to consider
the whole situation.

Figure 52. Protect a profit with a Stop below the Cloud

In Figure 52, the Eli Lily company chart shows that the share price rebounded
on the lower level of the Cloud, fell, then rebounded to start up again. Since the
share price is in the Cloud, the trader needs to be extra careful and put a Stop
under the Cloud. There are four levels of support in early May: the top of the
Cloud, the Conversion Line, the Base Line, and the bottom of the Cloud.
It’s always better to invest when the price is out of the Cloud because the inside
of the Cloud is an area where the fight between buyers and sellers can drag on.
Let’s see what happens next for a few more periods ahead.

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 INTERPRETATION OF THE ICHIMOKU SYSTEM

Figure 53. Protect a profit with a Stop above the Cloud

As you can see in Figure 53, the price variations inside the Cloud are rather low.
When the price is about to break the top of the Cloud, there is an explosion. The
break from the top of the Cloud was quick, and the rest seems promising. But
why? The Cloud represents the strongest zone of resistance. The trader who
enters the market after the breakout of the Cloud should place the Stop under
the top of the Cloud to protect himself from a sudden drop. The horizontal
ceiling of the Cloud indicates that the support is concentrated at the same
level. The stock continued its run up to $86.

Important reminders about the Cloud

ˬˬ Difficulty in reading a chart. Charts with low volume transactions are
difficult to read because there is no trend.
ˬˬ Three time horizons. Ichimoku can display information about the
past, present, and future.
ˬˬ Cloud Twist. A green-red twist indicates a downward trend when the
price is below the Cloud. A red-green twist indicates an upward trend
when the price is above the Cloud.
ˬˬ Cloud with a flat top. The zone of resistance is clear. The breakout of
this zone can lead to a rapid rise in prices.

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ˬˬ Cloud with a flat bottom. The support area is straightforward. The

breakout of this zone can lead to a rapid decline in prices.
ˬˬ Target. The Ichimoku system extrapolates the position of the
equilibrium zone and thus the support and resistance zones.
ˬˬ Stop protection. The components of the Ichimoku make it possible to
establish the position of a protective stop. It is necessary to bet on the
indicator which represents the best support or resistance.

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CHAPTER 5

Ichimoku Strategies

T
he goal of any effective trading strategy is to provide traders with strong
signals to enter the market early and exit on any sign of weakness.
Simple strategies remain the most popular, so popular that markets
seem to react at the same time. Think of the crossing of the SMA50 moving
average that crosses above the SMA200 moving average and generates a buy
signal. This strategy is followed by thousands of traders who react at the same
time. Recognized strategies are in the sights of market makers who are already
anticipating the reaction of traders.
Ichimoku-based strategy development requires the analysis of each
component before diving into the market. The strength of Ichimoku rests on
the entire system. The analysis of the alerts previously seen will facilitate the
understanding of the strategies to use when entering and leaving the markets.
The positioning of the other indicators will make the difference between a good
and a bad strategy. Whatever the strategy used, the Ichimoku will highlight
strong elements such as:
ˬˬ The trend
ˬˬ The momentum
ˬˬ Entry points
ˬˬ Exit points
ˬˬ The bullish zone, the bearish zone, and the equilibrium zone
ˬˬ Current and past support and resistance zones
Despite a general misunderstanding of investors, Ichimoku attracts a good
clientele. The signals launched by Ichimoku succeed in causing volatility in the
financial markets. We will cover five important strategies based on Ichimoku.
Each of the strategies focuses on an indicator that serves as a starting point;
thereafter, we graft conditions to be respected.

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The proposed strategies have three or fewer conditions. The choice of strategy
depends on the configuration of the chart. It is sufficient to determine if one of
the following situations exists:
ˬˬ Crossing between an indicator and the price
ˬˬ Cloud breakout by the price
ˬˬ Crossing between indicators
Alert combinations are numerous but revolve around the same elements. After
some analyses, you will quickly recognize the configurations that have a chance
of success. It is the positioning of the other indicators that confirms the validity
and the power of a configuration. The five strategies based on Ichimoku are:
ˬˬ 1. Conversion Line/Base Line Cross Strategy (Tenkan-Sen/Kijun-
Sen Cross)
ˬˬ 2. Base Line Cross Strategy (Kijun-Sen Cross)
ˬˬ 3. Cloud Breakout Strategy (Kumo Breakout)
ˬˬ 4. Lagging Span/Price Cross Strategy (Chikou Span/Price Cross)
ˬˬ 5. Lagging Span/Cloud Cross Strategy (Chikou Span/Cloud Cross)
After revisions of the strategies, the trader will be able to forge a strategy of
his own. A strategy must be easy to memorize for the trader. We often see on
the web strategies that include more than a dozen rules to respect. Given the
impossibility of memorizing too many steps, abstain!

Conversion Line/Base Line Cross Strategy

The Conversion Line and the Base Line are the nerve center of Ichimoku, as
these curves are directly related to the stock price. Just like classic moving
averages, crossovers of the Conversion Line and the Base Line must be
monitored, as well as the moment when the price crosses these curves, up
or down. This strategy is for the trader who wants to trade in the short and
medium-term. Here are the basic requirements of the Conversion Line/Base
Line Cross Strategy during a purchase:
Mandatory condition 1. The crossing must be above the Cloud.
Mandatory condition 2. The current price is above the Cloud.
Mandatory condition 3. The Lagging Span is located above the price of the
26th previous period.

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The crossover position between the Conversion Line and the Base Line will
affect the signal strength. If the crossing is above the Cloud, it is a strong
bullish signal. If the crossing is below the Cloud, it is a weak bullish signal that
still deserves our attention.

Summary table of the Conversion Line/Base Line Cross Strategy

Figure 54 shows the variations of the Conversion Line/Base Line strategy. Each
of the rows in the table is a strategy. There are three bullish and three bearish
variations. A strong bullish signal occurs when all components of Ichimoku have
the perfect configuration with a low-risk level. However, a strategy with low-
risk potential will generally yield less profit. Entry and exit are late compared to
other punchy strategies.

Figure 54. Summary table of the Conversion Line/Base Line cross strategy

The trader who trades in the short-term will be attracted by the Conversion
Line/Base Line cross strategy. Note that the configuration with a weak bullish
signal does not mean that it is a bad option. I do not like this name, which only
serves to distinguish the strength of a strategy.
A weak strategy can generate much better profits than a strong strategy, as an
entry into the market will usually be made earlier in the sequence. The strong
signal will come to join the configuration later. The financial title may need
some extra time before the signal increases in power. Let’s continue with the
help of examples.

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Example of a bullish Conversion Line/Base Line Cross Strategy

The chart in Figure 55 shows the Ultrapar Participacoes share price that has
crossed the Cloud for some time. The price shows a lot of volatility. Leading
Span B (top of the red Cloud) represents the best support for all components of
Ichimoku. There was an incursion into the Cloud from November 11 to 13, but
the resistance did its job. The Base Line indicator remained on the rise.

Figure 55. Buy signal of Conversion Line/Base Line cross strategy

The conditions shown in Figure 55 are connected with the Conversion Line/
Base Line Cross Bullish Strategy:
Mandatory condition 1. The crossing takes place above the Cloud.
Mandatory condition 2. The price is located above the Cloud.
Mandatory condition 3. The Lagging Span is located above the price of
the 26th previous period. In addition, Lagging Span is in a space free from
interference; it is a must.
Optional condition. The future Cloud is green; the announcement of a trend
reversal has been made since the end of November. Figure 56 shows the periods
that followed the triggering of the buy signal. Signals remain to facilitate
tracking. Notice the shape of the Cloud that looks like an arc whose opening is
directed toward the upper part of the chart. A pure delight!

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Figure 56. Following the buy signal of the Conversion Line/Base Line cross strategy

Whatever the financial title, following a strong bullish signal, Ichimoku will
have the same appearance. Notice the parallelism between the Lagging Span,
the price curve, the Conversion Line, the Base Line, and the Cloud. Indicators
are easily identifiable; no cross, no confusion. The clarity of the chart is
synonymous with profit.

Example of a bearish Conversion Line/Base Line Cross Strategy

Figure 57 shows the Nvidia stock peaking at $290 in early October. This was the
end of a three-year climb for a $265 per share gain. Unbelievable! The beginning
of October marked the end of this extraordinary rise.

Figure 57. Short-selling signal for the Conversion Line/Base Line cross strategy

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Here are the conditions shown in Figure 57 in connection with a bearish

Conversion Line/Base Line Cross strategy in a short sale situation:
Mandatory condition 1. The crossing is done inside the Cloud. This is a
neutral bearish signal.
Mandatory condition 2. The price is located below the Cloud.
Mandatory condition 3. The Lagging Span is located below the price of
the 26th previous period. In addition, the Lagging Span is in an open space
without any interference from other indicators.
Optional condition. The future Cloud is red.
Figure 58 shows the periods that followed the triggering of the short sell
signal. Note that the red Cloud is getting thicker on the right of the chart. This
is bad news for those who believe in a short-term downturn. The fall was
predictable, given the extraordinary rise of the stock.

Figure 58. Following a short-selling signal for the Conversion Line/Base Line cross strategy

There are two blue and dashed circles highlighting false signals. The price makes
an attempt to turn upward but falls back each time below the Conversion Line.
A purchase cannot be considered before the Conversion Line passes above the
Base Line; this is the minimum required. In addition, it is necessary to wait for
the Base Line to recover and begin an upside reversal.

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Base Line Cross Strategy

The Base Line Cross strategy is the simplest and most popular strategy for
traders. It places in opposition the price and the Base Line. This tactic requires
fewer conditions than other strategies. In fact, the theoretical model requires
only one condition. A trader who bases his trading strategy on a single condition
or indicator is a trader who has a high tolerance for risk. This strategy is mainly
aimed at the swing trader.
This strategy brings its flood of false signals. An additional alert, of any kind,
from another indicator may be considered to ensure the strength of the signal.
Here are the basic requirement and an optional alert for the Base Line Cross
strategy during a purchase:
Mandatory condition. The crossing takes place above the Cloud.
Optional condition. The Base Line is on the rise.
The detection of other alerts such as the green color of the future Cloud or a
Lagging Span located above the price of the 26th preceding period makes it
possible to support the decision to invest. No matter the strategy used, the
detection of additional signals is an undeniable asset.

Summary table of the Base Line Cross Strategy

The strategy of the Base Line cross offers six basic scenarios. A cross between
the price and the Base Line above the Cloud represents a strong bullish scenario.
An optional alert has been added to the table, which is Figure 59. In the case of
a bullish scenario, the Base Line should be oriented upward. In the case of a
bearish scenario, the Base Line will have to be positioned downward.

Figure 59. Summary table of the Base Line cross strategy

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Signals are common, and the Base Line offers less distortion, so there are fewer
false signals than the Conversion Line. The trader must favor popular financial
titles that show clear and precise trends.

Example of a Base Line Cross Strategy

The Canopy Growth chart, Figure 60, shows a strong bullish signal. On July
23th, the stock begins an upside reversal. On August 10th, the price passes
above the Base Line, but the crossing takes place below the Cloud, and the Base
Line is oriented downward. The bullish signal is weak.

Figure 60. Buy signal for a Base Line cross strategy

The trader who wants to limit the risk can wait for a better configuration. The
price makes an incursion under the Base Line and then suddenly explodes on
the rise and passes above the Cloud, which triggers a strong bullish signal. The
Base Line is now on the rise. Here is the basic requirement and optional alert
for the Base Line Cross strategy for the example above:
Mandatory condition. The crossing takes place above the Cloud.
Optional condition. The Base Line is on the rise.
The configuration seems very interesting to enter the market. Have you noticed
where the Lagging Span is located? Just above the Cloud, and no resistance on
the horizon! Another plus is added to the basic configuration. Moreover, the
strong volume surge confirms the trend reversal.

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Figure 61. Following the buy signal of the Base Line cross strategy

As shown in Figure 61, the price is rising sharply. The configuration is perfect;
many traders have sniffed the bargain. Soon after the upside breakout of the
Cloud, the price accelerates its climb. Despite the fact that Ichimoku remains
little known, this proves without a shadow of a doubt that many traders are
interested because many of them react at the same time.

Cloud Breakout Strategy

The Cloud is a trend-tracking indicator we can compare with the Directional
Movement Index, MACD, or SMA30 indicators that may respond more quickly or
later. Some traders only use the Cloud as an indicator and completely eliminate
the other elements of Ichimoku. Similar to the previous strategy, it is necessary
to wait for the confirmation of other alerts before diving into the market. This
strategy is based on the search for a major reversal; long-term investment is
preferred. Here are the basics of the Cloud Breakout Strategy when making a
purchase showing the price that passes above the Cloud:
Mandatory condition 1. The Base Line is bullish.
Mandatory condition 2. The color of the future Cloud has changed to green.
Mandatory condition 3. The Lagging Span is located above the price of the
26th previous period.
The positioning of the Lagging Span will influence the signal strength. If the
Lagging Span is above the Cloud, it’s a powerful bullish signal. If the Lagging
Span is located below the Cloud, it is a weak bullish signal. A Lagging Span inside
the Cloud indicates a neutral bullish trend.

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Summary table of the Cloud Breakout Strategy

The Cloud Breakout Strategy is based on the idea that the Cloud signifies a
major obstacle to break for the stock price. The upside breakout of the Cloud
means the breaking of the equilibrium zone and, as such, marks the beginning
of a new trend that should last for a while. See Figure 62.

Figure 62. Summary table of the Cloud breakout strategy

As always, before diving into a stock, it is mandatory to obtain confirmation of

the validity of a signal before making a move. Conditions are limited to three to
simplify the process, but the trader can add another one if doubt persists.

An example of a Cloud Breakout Strategy with a strong bullish signal

This strategy is for traders who want to invest when the configuration involves
very low risk. Entry into the market is done when all conditions are met.
Figure 63 shows the chart of the Las Vegas Sands company operating in the
casino sector. This chart has beautiful curves, and it is easy for the trader to
take a stand. Since June 2018, the casino sector had been in a downtrend that
began to fade. The stock confirms a double dip in December. This is a strong
reversal signal. The buy signal is launched on January 18th, according to three
conditions appearing in the table in Figure 62:
Mandatory condition 1. The Base Line is on the rise.
Mandatory condition 2. The future Cloud is green.
Mandatory condition 3. The Lagging Span is located above the Cloud
of the 26th previous period. Nothing seems to hinder the climb of the
Lagging Span.

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Figure 63. Buy signal for a Cloud breakout strategy

The quality of the signal has a cost: entry into the market is late. The potential
area of gain is more restricted. Figure 64 shows the periods that followed the
triggering of the buy signal.

Figure 64. Following the Buy signal for a Cloud breakout strategy

Note that the entry is at the same price as the signal issued earlier by the
Conversion Line/Base Line cross. The minor pullback, following the break of the
Cloud, has slowed down the climb. The trader is reassured by the Cloud on the
right which is pointing upward.

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An example of a Cloud Breakout Strategy with a strong bearish signal

The Ichimoku system offers very good signals when it comes to selling or short-
selling. The company Electronic Arts saw the price of its stock plunge from $150
to $127 in just over a month. The price began to drop on July 25th following the
unveiling of poor quarterly results. One might think that the decline is over.

Figure 65. Short-selling signal for a Cloud breakout strategy

As shown in Figure 65, the price has made many attempts to cross the Cloud
upward but there is downward momentum. The Conversion Line and the Base
Line point down. The Cloud breakout was down at the end of July but did not meet
the conditions set previously. It takes almost a month for the conditions to be met:
Mandatory condition 1. The Base Line is downward.
Mandatory condition 2. The color of the future Cloud is red.
Mandatory condition 3. The Lagging Span is located below the Cloud in the
26th previous period.
The cautious trader could wait until the price breaks the support created in
August before investing. The following chart, Figure 66, shows what happened
next. The stock price has accelerated its fall. The price is attempting to turn
up in early October, but it is unable to stay above the Base Line, which has
remained on the decline.

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Figure 66. Following the short-selling signal for a Cloud breakout strategy
Figure 66 shows that Lagging Span continues its decline in an area where nothing
can slow down its fall. Electronic Arts lost 50% of its value in four months and
38% of its value since the sell signal. The signals generated by the Cloud Breakout
allow the trader to enter or leave the market with confidence. However, the
quality of the signals occurs with a significant delay. To maximize its gain, the
swing trader would not hesitate to initiate a short sale during the alert launched
by the crossing of the Conversion Line and the Base Line at the end of July.

Lagging Span/Price Cross Strategy

The strategies all end up looking alike; that’s the simplicity of the Ichimoku
system. While Lagging Span has so far been used to confirm signals, it is now
at the heart of its own strategy. This strategy is based on the crossing of the
Lagging Span and the price of the 26th previous period. We must read by
comparing the position of the crossing and that of the Cloud. This strategy is
for the trader who wants to invest in the short and medium-term. Here are the
basics of the Lagging Span/Price Cross strategy when making a purchase that
shows a strong bullish signal:
Mandatory condition. The crossing of the 26th previous period is above
the Cloud.
Optional condition. The Base Line is bullish.
Adding an optional condition such as the Bullish Base Line or the Green Colored
Cloud gives strength to the investment decision.

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Summary table of the Lagging Span/Price Cross Strategy

Most of the time, the Base Line will be oriented in the same direction as the
Lagging Span. There is a good chance that a Lagging Span/Price cross from the
26th previous period will pass above the Cloud and pass above the Base Line.

Figure 67. Summary table of the Lagging Span/Price cross strategy

There are six types of signals with three intensity levels for the Lagging Span/
Price strategy, as shown in Figure 67. This is the most complex strategy for the
uninitiated. We look at the current price, then we go back 26 periods, and we fix
our gaze on the Lagging Span. If the price of the 26th previous period is below
the Lagging Span, the signal is bullish. If the price of the 26th previous period
is above the Lagging Span, the signal is bearish.

An example of a Lagging Span/Price Cross Strategy

Figure 68 shows a stock that has lost 66% of its value in three months. The
price has shaped a good support between $2.50 and $3.00. The future Cloud
moves laterally and tends to decrease in thickness. A good support is being
formed; the Conversion Line and the Base Line form a plateau. The Lagging
Span indicator just passed above the price of the 26th previous period. We
move 26 periods to the right to identify the position of the current price. Let’s
see if the conditions are met:
Mandatory condition. The current price is located inside the Cloud. The
signal is neutral bullish. The Cloud will have less impact because the thickness
is constantly decreasing.
Optional condition. The Base Line has just completed a lateral shift and is
turning upward.

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Figure 68. Buy signal for the Lagging Span/Price cross strategy

The trader who entered the market during the buy signal should expect a slower
climb or lateral displacement due to the presence of the Cloud. However, market
conditions can change rapidly. The price is building a strong support; the stock
has just completed its low of the year.

Figure 69. Following the buy signal for the Lagging Span/Price cross strategy

As shown in Figure 69, the Cloud slowed the rising price that is moving to the
right, but the curve managed to break the top. The future Cloud is green. The
Lagging Span indicator is now clear of any obstacle.

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Lagging Span/Cloud Cross Strategy

Hosoda assumed that past prices have an influence on current prices, which
will influence future prices of financial stock. The interactions that result from
it can generate buy signals, sell signals, or total inaction. This strategy is for the
trader who wants to invest in the short and medium-term. Here are the basic
requirement and optional condition of the strategy of a strong bullish cross
between Lagging Span and the Cloud during a purchase:
Mandatory condition. The current price is above the Cloud.
Optional condition. The Base Line is on the rise.
If you think you are in front of the transaction of the century, it is quite possible
that there is another invisible condition... who knows? This trend-tracking
system is based on the concept that the Lagging Span is breaking the Cloud.

Summary table of the Lagging Span/Cloud Cross Strategy

There are six types of signals with three intensity levels for the Lagging Span/
Cloud Cross strategy, as shown in Figure 70. Most of the time, the Base Line will
be oriented in the same direction as the Lagging Span. If not, the trader should
wait for the reversal of the Base Line or wait for another condition to occur.

Figure 70. Summary table of the Lagging Span/Cloud cross strategy

Simply determine the location of the Lagging Span in relation to the Cloud and
evaluate the situation of the current price and the Base Line.

An example of a Lagging Span/Cloud Cross Strategy

Figure 71 shows a strong bullish signal that corresponds to the Lagging Span/
Cloud crossing strategy. As always, Alcoa stock presents a winding price formed
by beautiful waves. The stock has been down since February. The Cloud changes
color in mid-August to confirm the upward trend.

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Figure 71. Buy signal for the Lagging Span/Cloud cross strategy

It is common to see alerts that add to the basic conditions of some strategies.
Alcoa is a good example where two additional confirmations are added to the
configuration of a strong bullish crossover strategy between Lagging Span
and Cloud:
Mandatory condition. The current price is above the Cloud.
Optional condition 1. The Base Line is on the rise.
Optional condition 2. The future Cloud is green.
We note that the Cloud presents horizontal supports with power. The Lagging
Span closes above the Cloud. The current price is above the Cloud. The condition
is met; the trend is bullish. The Base Line has just completed a lateral shift and
is turning upward. All indications are that the stock will continue to rise. The
color change of the future Cloud proposes a longer rise of this financial title.

Figure 72. Following the buy signal of the Lagging Span/Cloud cross strategy

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As shown in Figure 72, the share price went from $36 to $45 in less than two
months of trading. The Lagging Span circulates in a virgin territory; no obstacle
can slow it down. We must track the stock closely because the price seems to
move away from the Conversion Line. A pullback is expected because the climb
is too steep in early September.

Important reminders about strategies

Strategies only serve to show different ways to enter or exit the market.
Strategies highlight a component supported by simple conditions. The trader
must master strong signals and basic concepts to automate his reactions to
different markets. The trader can combine elements of different alerts and
design his own strategy. Here are some reminders about strategies:
ˬˬ The Lagging Span that crosses the Cloud is a strong bullish signal.
ˬˬ The price that crosses the Cloud is a strong bullish signal.
ˬˬ The crossing of the Conversion Line/Base Line is a signal of intermediate
quality that must be supported by other signals.
ˬˬ Cloud blocks access or slows the stock price.
ˬˬ During an uptrend, the large gap between the Conversion Line and the
Base Line suggests that the price will make a pullback.
ˬˬ During a decline, the large gap between the Conversion Line and the
Base Line suggests that the price will move forward.

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CHAPTER 6

Trigger Signals Faster

T
he strategies seen previously were fairly homogeneous. Using the same
group of indicators cannot generate strategies that are different from
each other. A strategy is used because it seems efficient and allows
maneuvering in a comfortable area. We are turning our back on other strategies
because they take us to unknown, complex areas where the risk is higher. The
use of proven strategies places the trader in a protective dome that hinders the
discovery of other interesting techniques or tactics.
Some traders have an extraordinary sense of anticipation. In fact, they have the
same tools as others but manage to get in and out of the market faster. They
make a better reading of the markets and know how to quickly recognize the
next levels of support and resistance that represent the points of entry and
exit. But all this is not instinctively done. The pro uses indicators and modifies
them to get the signal before the crowd of traders.
Of course, other leading indicators such as Stochastic, Bollinger Bands, or
Momentum indicators can be used. For the moment, we will stay with the
Ichimoku; other options will be seen later in this book. In some situations,
it is noted that Ichimoku is lagging behind other indicators, that it does not
react fast enough when the price turns quickly. The opportunity may seem
interesting, but the Ichimoku is slow to launch the signal.

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Analysis of a bullish reversal

It is the dream of every trader to be able to detect opportunities and enter the
market a few minutes or hours before the crowd. Micron’s weekly chart shows
the ideal configuration. In Figure 73, the trend is well defined, and the stock
drifts back slowly. The price builds an excellent support throughout its uptrend,
and another rally occurs.

Figure 73. Analysis of a bullish reversal using settings 9-26-52

The price curve presents a few distortions, and other indicators are distinctive.
The trader who wishes to buy Micron will have to consider the following:
1. End of the bearish trend. The price shows the end of a downtrend that
began more than a year ago. The red Cloud is well positioned above the
price. Making an entry into a market that has suffered a decline of more
than 50 periods is less worrying for the trader.
2. Consolidation period. The stock just lost 66% of its value. The trend
reversal has started for a few periods. The price curve shows some
disruption; sellers and buyers have difficulty agreeing on a floor price.
The Conversion Line and the Base Line flatten. The selling pressure is
drying up.
3. Price passes above the Conversion Line. This is the first alert
generated by Ichimoku. This is not the best signal, but it is the warning
of a possible change in the trend. It is necessary to favor a Conversion
Line on the rise. Some speculators are ready to take long positions.

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4. The price passes above the Base Line. This is a significant signal due
to the Base Line formula which spans 26 periods. However, the Base
Line is on the downside; we must wait for the reversal. The price needs
to show more strength when crossing the Base Line. The lack of vitality
is caused in large part by the presence of the Cloud.
5. The Conversion Line passes above the Base Line. This is a strong
signal; many traders consider this signal to make an entry into the
market. There is an acceleration of the rise following the break.
6. The equilibrium zone. Cloud plays its role of resistance by slowing the
rise of the price that moves laterally.
7. Bullish territory. The price crosses the Cloud and reaches the bullish
territory. We can feel the acceleration of the price right out of the Cloud,
as is often the case. The conditions of the Cloud Breakout Strategy are
respected; we are in front of a strong buy signal at $20.
8. Lagging Span. The indicator is above all other curves: Conversion Line,
Base Line, Leading Spans A and B. This is the last trend confirmation
signal. The conditions of the Lagging Span/Cloud strategy are respected;
we are in front of a strong buy signal at $22.
9. The Twist. Leading Span A goes above Leading Span B and forms a
Twist. The Cloud is up; it’s another sign of reversal.
10. Sustained increase. The parallelism of the Conversion Line and Base
Line curves indicates a lack of volatility. No worries on the horizon. We
are monitoring the future crossover of the Conversion Line/Base Line,
which will begin a downward turn.
The fiery trader who literally follows a strategy will probably find that entry
is late in the market. The Cloud Breakout Strategy is slightly ahead of the buy
signal generated by the Lagging Span/Cloud strategy. So, how could we get a
signal to enter the market earlier?
Buying and selling before the crowd is the secret to surviving the stock markets.
The aggressive trader relies on indicators that react quickly with a greater
risk of an unexpected trend reversal. The standard settings of Ichimoku offer
the trader an opportunity to enter the market without danger but leave less
space-time to reap profits. The original Ichimoku settings are based on the
numbers 9-26-52.

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It is possible to change the standard settings to get signals that resonate earlier.
Several experts advise changing the settings and adjusting them to the reality
of the current markets based on a five-day trading week. Simply replace the
original settings, with the 7-22-44 settings, as shown in Figure 74.

Figure 74. Classic settings versus 5-days-a-week settings

As shown in Figure 75, reducing the settings allows the indicators to send
signals sooner. The Cloud Breakout Strategy signal goes from $20 to $18, while
the Lagging Span/Cloud strategy goes from $22 to $20. The change of settings
provides an additional gain of at least 10%. However, reducing settings increases
the risk of false signals. Compare the thickness of the Cloud between the last
two graphs. The second chart using the 7-22-44 settings shows a thinner Cloud.
This will have a major impact on the strength of support and resistance.

Figure 75. Analysis of a bullish reversal using settings 7-22-44

Nevertheless, it is necessary to remain cautious with the changes in settings.

Hosoda had been testing his theory for over 20 years. Although the number
of trading days per week has decreased from six to five, the basic settings are
responding very well to current market movements. Most traders do not touch
the settings, but it is the duty of every trader to improve the quality of his
entries and exits from the market.

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Analysis of a bearish reversal

The trader driven by greed has a positive view of the market that prevents that
trader from acting well when it is time to sell. Man misunderstands the idea
that a market can turn down; it is against nature. Ichimoku provides all the
signals needed to leave the market. Figure 76 shows the rise and the downward
trend for the Roku company. The trader who is in the heat of the moment has
difficulty following the strategies previously seen. Sometimes, it will take risky
decisions that have significant consequences. Let’s start by deconstructing an
uptrend followed by the reversal of the downward trend.

Figure 76. Analysis of a bearish reversal with default settings 9-26-52

1. The start of an uptrend. The price moves laterally for a few periods;
it is a consolidation phase. The Conversion Line passes above the Base
Line inside the Cloud; it’s a neutral bullish signal. The price accelerates
and passes above the Conversion Line. Considering the increasing
gap between the Conversion Line and the Base Line, an entry can be
considered despite being inside the Cloud.
2. The Cloud break. The top of the Cloud has a long plateau; the
resistance level is well defined. The price crosses the Cloud. This is a
strong signal because there is no resistance at a higher level.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

3. Lagging Span. The indicator crosses the Cloud at the same time as
the price. This is the ultimate confirmation. All indicators point to an
uptrend.
4. Twist. Cloud goes from red to green, generating a Twist. You must link
the Twist with the price of May 14th; we must go back 26 periods. At
this time, the price had no tendency.
5. The Base Line is up. The Base Line forms plateaus and continues its
rise. The price is trying to cross lower, but the Base Line resists and does
not flinch.
6. The Conversion Line serves as support. The climb is supported
by the Conversion Line. The price curve is very steep; this rise is
unsustainable. The trader must prepare for a trend reversal.
7. The Trend reversal. The climb lasted nearly five months, and the
price more than doubled during this period. The price goes below the
Conversion Line, which turns down. The selling pressure is higher, the
fall is severe. Fiery traders have already liquidated their positions.
8. The Price passes below the Base Line. It’s a powerful sell signal. The
price has already fallen 15% since its peak.
9. The Conversion Line and Base Line cross. Most traders leave the
ship with the satisfaction of the accomplished duty.
10. The price goes below the Cloud. It’s a sell signal that arrives late.
Traders who have been waiting for this signal have just left a lot of
money on the table. Cloud goes from green to red. The stock has already
lost 30% since its peak in October.
The case of Roku is well represented. The trader is so blinded by the vision of a
stock that goes to infinity; he loses all his resources when the price goes against
its projection. The hope of a turnaround remains and prevents the trader from
making a logical decision. Let’s take the same chart by isolating the profit
zone based on a simple Cloud Breakout Strategy. The top of early October is
represented by a vertical dotted line. See figure 77.
The profit zone between the buy signal (circle) and the sell signal (square) is
rather thin. The gain would have been higher if the trader had sold at the
downward crossing of the Conversion Line and the Base Line. The gain would
have been exceptional if the trader had liquidated his positions when the price

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passed below the Conversion Line in early October. But... easy to say after the
fact. So, how do you get an early sell signal to make better profits while using
the Ichimoku system? Simple! Instead of using a daily chart, the trader can use
an hour chart. The H1, H2, or H4 chart is recommended to see the difference
between the signals.

Figure 77. Gain area between the buy signal and the sell signal

A stock that has had a strong climb may fall quickly. By decreasing the unit of
time, one makes sure to react more quickly to the sell signals. Other traders
could sell simply when the price breaks down below the Base Line on daily charts.
Everyone can go about his method; you have to know how to adapt to different
situations. The purpose of the book is not to confine the trader to a particular
method but rather to keep an eye out for other complementary strategies.
Figure 78 focuses on the early October peak using the H2 time frame. Each
candlestick represents a period of two hours. The indicators use the same
settings 9-26-52 considering a calculation base of two hours instead of a
trading day. The H2 chart is analyzed in the same way as a daily or weekly
period. This is the beauty of Ichimoku. The vertical dotted line represents the
period when the summit occurred. The price remains above the Conversion
Line in early October. Subsequently, the Conversion Line drops below the Base
Line. The price plunges and stops on the Cloud, which plays the role of support.
Thereafter, the price bends and breaks the bottom of the Cloud.

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Figure 78. Acceleration of the sell signal using an H2 chart

This situation includes all the conditions of the neutral bearish Cloud Breakout:
Mandatory condition 1. The Base Line is downward.
Mandatory condition 2. The color of the future Cloud is red.
Mandatory condition 3. The Lagging Span is located inside the Cloud of the
26th previous period.
By promoting the use of the same strategy as the daily chart, the sell signal is
triggered much earlier at $67 instead of $55 in daily mode. This is an additional
gain of $12 per share. It only takes a few more minutes to test the stocks on
different time frames. In general, trading platforms offer the following time
frames: 1 minute, 5 minutes, 15 minutes, 1 hour, 2 hours, 4 hours, day, week,
month, or year.
The biggest difficulty for the trader is to close his positions. Put that on the back
of greed or the fear of losing potential gains. The stock market is a question
of emotions and not of mathematics. Unless you have an automated trading
system, the trader will continually be confronted with his emotions. In some
situations, you have to go beyond strategies.

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CHAPTER 7

The Triple Screen Strategy

A
lexander Elder invented the Triple Screen system in the ’80s for
monitoring price movement with three different time frames. I invite
you to read his works to know the strategy in detail. In general, Elder
considers that the market is made up of three trends: short-term, medium-term,
and long-term. This technique suggests the trader use charts with different
time frames before initiating an entry or an exit in the stock or crypto market.
According to this technique, the medium-term trend becomes the reference
unit of time. The short-term time frame is used to take a position in the market,
and the long-term time frame is used to analyze the trend in weeks or months.
The Triple Screen strategy remains complex for the uninitiated because it
incorporates several indicators. The objective of this section is to show the
usefulness of the technique without using the set of indicators.

How to determine time frames

The definition of the long-term time frame is different, depending on the
trader’s preferred investment horizon. For example, a trader who invests based
on signals from an M5 chart might consider a week to be a long-term horizon.
Another trader might consider a year (240 trading days) to be associated with
a long-term perspective.
So, how do you determine the three time frames required for Elder’s technique?
He suggests determining the medium-term time unit, which will be called the
reference unit. It will be represented by an eight-hour trading day. Then, we
consider a 40-hour trading week as the long-term time unit. All you have to do
is find the ratio between these two-time units, 40 hours divided by 8 hours, and
apply a rule of three to find the short-term time unit. Fortunately, there is an
easier way to do this.

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Let’s use the reverse path instead. The most popular ratios for determining the
three units of time are: the 3, the 4, and the 5. Let’s use ratio 4 as an example:
1. Short-term time frame. Let’s assume that the short-term unit of time
is one hour long (or H1).
2. Medium-term time frame. The medium-term unit is determined by
multiplying the short-term unit H1 by the ratio 4 to obtain H4.
3. Long-term time frame. The long-term unit is determined by
multiplying the medium-term unit H4 by the ratio 4 to obtain H16, the
equivalent of two trading days.
The Triple Screen technique should be used before making any transaction. The
chart for each unit may conceal chart patterns or divergences that will influence
the future price. Figure 79 shows the different time frames by region by
considering a trading day as a reference unit.

Figure 79. The trading by region

The number of trading hours per day is different depending on the region where the
trader lives. In America, the trading day is 6.5 hours, while the duration is 8.5 hours
for most European markets. This will influence the number of hours per week and,
therefore, the ratio. Apart from Forex and cryptocurrency exchanges that operate
24 hours a day, the short-term unit oscillates between the H1 and H2 charts.

How to use the Triple screen technique

Let’s use three charts of NCC company with different time frames: week, day,
and H2. To go in a classic way, we’ll use two exponential moving averages:
EMA13 and EMA34. We will closely monitor the crossing of these two curves.
Examples will feature Ichimoku in Chapter 9 dealing with trading rules.

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Medium-term reference unit–daily chart. Figure 80 shows a buy signal at

the beginning of March triggered by the moving average crossover of EMA13 (red
line) and EMA34 (green line). This chart shows that EMA13 crosses above the
EMA34, and the price breaks upward the triangle. The stock seems in a good
position to continue its uptrend.

Figure 80. Triple screen–daily chart

Long-term horizon–weekly chart. As you can see in Figure 81, the EMA13
indicator shows an upward trend, and the price has been rising since the end of
October. The weekly chart does not show a cross between the average EMA13
and EMA34, but they are close to each other. The volume has been rising steadily
for a year. The configuration for the long-term seems interesting.

Figure 81. Triple screen–weekly chart

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Short-term horizon–H2 chart. As you can see in Figure 82, chart H2 shows
the first alert triggered on February 27 following the crossing of EMA13 and
EMA34. The price starts a fast climb. The strength of the price is confirmed by
the physical distance between EMA13 and EMA34. However, the price is facing
strong resistance. Notice the formation of a bull triangle. The trader who has
little tolerance for risk should wait a longer period to see if the stock will break
the resistance. Indeed, the blue zone represents the four two-hour periods of
March 1st. The stock has a nice upside with a push of the volume.

Figure 82. Triple screen–H2 chart

The three charts have beautiful configurations. No apparent weakness of the
price on the charts in day and H2. The time seems propitious for the long-term
investor. The trader can wait for a weekly buy signal to reduce the risk.

Figure 83. Triple Screen–strategies

To conclude, the table in Figure 83 can help the trader to place buy and sell
orders. As always, it is recommended to use other indicators to validate the
signal quality. Ideally, it is better to enter the market when the volume expands
significantly and when the price makes a pullback on a daily chart.

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CHAPTER 8

Ichimoku and Classic Indicators

T
he Ichimoku Cloud is an effective trend-tracking system, but nothing
precludes the use of other indicators to give weight to the trader’s
investment decisions. Ichimoku has shown that the market has two
modes: trend and equilibrium. The bad evaluation of a trend reversal or being
stuck in a trading range is a waste of time for inexperienced traders. Early
entries or late exits mean that the trader not only loses time but also money,
as other opportunities are slipping through his fingers. The good trader makes
sure that all precautions have been taken before entering a trend market and
thus reduces the number of unnecessary transactions.
Some traders will combine Ichimoku and Fibonacci while others count Elliot
waves to determine entry points. I prefer the use of trend indicators because
I am ultimately looking to enter when a trend is confirmed. In order not to
overload the graphics unnecessarily, I limit myself to one or more of the
following indicators:
ˬˬ The Directional Movement Index (DMI) which includes Average
Directional Index ADX, Minus Directional Indicator ( ‑Di), and Plus
Directional Indicator (+Di)
ˬˬ Moving Average Convergence Divergence MACD
ˬˬ Exponential Moving Average EMA
We will see each of these indicators in detail using three examples. Reading
the EMA indicator may seem difficult because it integrates with the Ichimoku
window, which makes crossovers difficult to follow with other indicators. The
EMA curve will be represented by a dotted line. The Directional Movement
Index and MACD indicators will be presented in independent windows using
little space.

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The combination of Ichimoku Cloud and EMA

The exponential moving average gives more weight to the latest price instead
of allocating the same weight to all periods as the simple moving average
does. The exponential moving average is fiery and responds more quickly to
market volatility. Several possibilities are offered to the trader. Only one EMA
indicator can be used to follow the crossing made with the price. EMA13-30
or EMA13-34 combinations of averages can also be used to confirm trend
reversals. A trader who likes to enter a low-risk market should favor an
EMA13-48 combination.

Figure 84. Ichimoku and EMA indicators

Using a figure presented in Chapter 6, let’s keep the signals generated by the
Lagging Span/Cloud and Cloud Breakout strategies intact. They will serve as
comparison with the entry into the scene of the strategy EMA13-48 represented
by the dotted curves. Crossing EMA13-48 precedes signals sent by Ichimoku.
Often there is an interval between signals of different strategies. The EMA13-
48 crossover is inside the Cloud and generates a buy signal at $16.50.
This signal is really prior to the other two strategies. However, it must be
repeated; the signal is generated inside the Cloud, a less favorable area for
investment. The EMA13 indicator is up, and it plays very well its support
role for the share price. The gap between the indicators EMA13 and EMA48
is quite pronounced, which is reassuring and allows for considering an exit
of the Cloud from the top of the next periods. Indeed, the course had slowly
walked inside the Cloud before the break occurred.

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The combination of Ichimoku Cloud and MACD

The MACD indicator is one of the most effective trend indicators and probably
the most used indicator by traders. The indicator has proven itself and bases its
calculations on numbers that are strangely like those of Ichimoku. The MACD is
composed of three exponential moving averages (by default, 12, 26, and 9) and
represented by two exponential curves: the slow MACD, also called signal curve
(thin line), and another thicker one, the fast MACD. The crossings of the two
curves represent trading signals. The signal is bullish when the fast MACD
(thick line) passes above the slow MACD (thin line). The signal is bearish when
the fast MACD (thick line) goes below the slow MACD (thin line). The zero level
is a significant crossing area.

Figure 85. Ichimoku and MACD indicator

As shown in Figure 85, the financial security Surgery Partners plummeted in

early August to lose 25% at the opening of markets. At one point in the day, the
stock had lost more than 50% of its value to finally complete the session with a
drop of 35%. A downward gap occurs because of bad news the day before, after
the markets closed. The next morning, investors liquidate en bloc. The MACD
indicator reacts quickly to this market downturn but generates a bullish cross
that must be interpreted as a false signal. Why?

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During the sharp decline of stock, the indicators massively react downward,
and the slightest positive sign will send a buy signal. It will be necessary to
wait until the consolidation period is completed before considering the signals
generated by conventional indicators such as the Directional Movement Index
or the MACD indicator. After the consolidation period, the MACD indicator
crosses the median line to mark the beginning of a new upward trend. In early
December, the MACD indicator initiated a buy signal along with Ichimoku.

The combination of Ichimoku Cloud and DMI with ADX

The Directional Movement Index is a trend-tracking indicator and also a
momentum indicator. It is a trading system by itself because it allows for
generating of many signals. It is represented by three curves: +Di (green line),
‑Di (red line), and Average Directional Index ADX (black line). The +Di measures
the upward pressure, while the ‑Di measures bearish pressure. The ADX curve
measures the momentum associated with upward or downward pressure. The
Average Directional Index is an indicator with a scale that ranges from 0 to
100. A reading above 25 is a sign of a strong trend, likely to continue. It should
be noted that the ADX black curve does not follow the trend of the market. It
measures the strength of the market, both upward and downward.

Figure 86. Ichimoku and Directional Movement Index

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Let’s continue with Figure 86 that starts with a bearish triangle as the price runs
along the lower base of the Cloud. Note that Ichimoku had already issued a sell
signal before the appearance of this triangle. In October, the course attempted
a foray into the Cloud, but the downward pressure was too much. The price
goes below the Cloud, and at the same time, the Directional Movement Index
confirms the reversal of the downward trend. It only takes a few periods for the
price to break the base of the triangle. There are two sell signals generated in
different ways; the latecomers must not wait any longer.
The stock continues its downfall. A trend line has been drawn. Toward the end
of December, the break of this line will launch a first buy signal without the help
of any other indicator. Subsequently, it is the turn of the Directional Movement
Index to trigger a buy signal through the crossing of indicators +Di and ‑Di.
This crossing comes at almost the same time as the Conversion Line/Base Line
crossing. The last two signals generated by the Ichimoku arrive late because the
upside reversal happened much too quickly. This is a weakness of Ichimoku; the
system provides delayed signals on trend reversal.
The three preceding examples demonstrated the usefulness of combining
classical indicators, chart figures, and the Ichimoku system. The latter is not
the perfect system for any occasion. Besides, beware of sellers of miracle recipes
that advocate a single indicator. By combining all the tools available to make
an investment decision, the trader makes sure that he has done everything to
reduce the risk of loss.
It may happen that classic indicators provide signals before those of Ichimoku.
In this case, it suffices to validate the signal with one or two other indicators such
as the Directional Movement Index and the indicator MACD. If these indicators
launch a buy signal, the trader should not hesitate to enter the market, even if
the Ichimoku has not generated a signal based on one or other of the strategies.
Watch the stock closely; an alert is in preparation.

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CHAPTER 9

Trading Rules

T
he implementation of trading rules makes it possible to apply for a
procedure that favors the reduction of risks. In addition to increasing risk
through a lack of discipline, the trader can see his capital decrease quickly
if he acts intuitively. As we saw earlier, the price that breaks the Conversion
Line does not represent the best guarantee of success. We must opt for signals
that will be supported by strong conditions.

The preliminary trading

A trading session requires some preparation! It is not enough to look at a chart
and analyze it. Trading has to be seen as a job or a business. Rigor is essential in
any analysis, like the foreman of a site that prepares the ground before starting
the construction of a new building. Here is a list of preliminary steps to a trading
session, assuming you have already identified a financial security:
ˬˬ Check the trend of global markets. The direction of world markets
strongly influences the direction that a particular stock will take. It is
rare to see a stock going against the current trend.
ˬˬ Never invest until quarterly results are announced. The reaction
of the markets after the unveiling of the quarterly results is too often
irrational. The news is good, the market is going down. The news is bad,
the market is turning up. Never play the diviner.
ˬˬ Understand the level of fluctuations. The opening and closing of
markets account for nearly 50% of securities traded in a single day. It is,
therefore, useless to spend the entire session in front of a screen.
ˬˬ Avoid equilibrium zones. Balanced markets generate small price
movements. Refraining from trading is part of trading.

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ˬˬ Limit the risk. The trader can place Stop Orders that limit losses when
the price suddenly changes direction. The sale will be triggered when
the stock passes the determined target. Limiting risk also means not
investing the entire portfolio in a single stock.
ˬˬ Avoid pump-and-dump fraud. The pro has nothing to do with the
moods of traders who limit themselves to vociferate, “Go, Amazon, go!”
Forget the gurus who sell their daily selections of winning stocks. They
are positioned and ready to sell the securities they recommend. Avoid
social networks that bring only useless distractions.
The natural reflex of the trader when making a purchase is to hope that the value
will rise so as to cash in good profits. This is the most common way to trade on
the stock exchange. Some traders rely on their instincts; others go for rough
analysis. Others impose particularly strict rules. This is an excellent approach to
keep the focus and promote discipline. Any trader should concoct his own list of
rules to follow before trading with the help of Ichimoku or any other indicator.
Trading rules prevent the trader from venturing into unfamiliar territory. The
rules have been established from my experience in technical analysis using the
signals and strategies emanating from the Ichimoku system. The examples are
presented in a daily format to give the reader the chance to access the graphics
available on the web. Note that the same stock will be used to successively cover
each stage (buying, selling, short selling, and closing a short position). The rules
must be easily memorable, as were the strategies.
The rules must adjust to your trading style. The aggressive trader could invest
upon the crossing of the Conversion Line and the Base Line. It runs a risk of rapid
reversal and will have to respond quickly to market reactions. For its part, the long-
term trader will absolutely have to consider the break of the Cloud by the price in
addition to other robust conditions. Without being mandatory, the inclusion of
classic indicators reassures the trader who is taking his first steps with Ichimoku.
The use of a line to identify trends is an undeniable asset. By combining Western
and Eastern indicators, the trader ensures the best of both worlds.

Trading rules for buying

The insertion of notes to the chart and the detection of many elements such
as trends, divergences, and chart patterns remain a decisive asset. Long-term
trend breaks represent another advantage that must be considered before
entering into a transaction. Other indicators are essential to support the signals

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generated by the Ichimoku system. In order not to overload the graphics and
facilitate learning, only the essential elements of the rules will be added. Here
are my rules related to a purchase after analyzing the daily chart:
1. The price is above the Base Line, which is going up.
2. The price is above the top level of the Cloud.
3. The future Cloud, on the right, is green.
4. The Lagging Span has crossed the Cloud on the rise.
5. The Directional Movement Index or MACD indicator is bullish.

Figure 87. Trading rules for buying on a daily chart

Figure 87 respects all the precedent rules and shows a bullish configuration.
Numbers surrounded by a circle serve to link to one of the preceding rules.
Notice the long horizontal support created by the Cloud. There is no need to
draw a support line; the Ichimoku does all the work. Audacity regularly pushes
me to forget rule #3. The protection stop has been placed inside the Cloud
to prevent manipulations of market makers from triggering the stop. The
protective stop must be placed below a rather robust support area (Base Line,
Cloud, EMA34, or a group of candlesticks). The increase in the volume of the
last five days confirming the upside breakout of the Cloud is another sign that
there are traders interested in Ichimoku.

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Now, let’s take a look at the weekly chart to gauge the underlying trend. This
chart is only used to support the daily analysis done previously. The price curve
has sharp amplitudes. It is encouraging to see the price above the EMA34
indicator and the Base Line. We would have enjoyed a price above the Cloud.

Figure 88. Trading rules for buying on a weekly chart

The MACD indicator shows a bullish signal at the end of April. The overall
configuration is more than satisfactory, considering that the transaction will
be based on the daily chart. The trader must be less demanding for the weekly
analysis, which is mainly used to take the pulse of the uptrend. The presence of one
or two confirmations will suffice to continue with the daily analysis. Some authors
suggest applying the same input rules to the weekly chart as the daily chart. If we
propose this tactic, we will have to wait a longer time to trigger a buy signal.

Trading rules for selling

Any inexperienced trader will agree that it is easy to buy but difficult to sell
because emotions paralyze and dazzle the attainment of incredible heights.
As with buying, sales rules are dependent on crosses made by the price and
the indicators. Personally, by imposed discipline, I prefer to exit markets faster
than buying. At the slightest sign of weakness, the sell order is triggered. It’s
for this reason that I reduce the number of rules to four, but according to the
configuration of the chart, I do not hesitate to sell when one or two rules are

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respected. I choose to exclude a fall into the Cloud as a sell signal because it is too
late compared with other signals. Here are the trading rules for sales position:
1. The price is below the Base Line
2. The price is located below the EMA34 indicator
3. The break of a significant uptrend
4. The Directional Movement Index or MACD indicator is bearish

Let’s move forward in time to see that the security Devon Energy shows some
breathlessness toward the end of May. The climb continues slowly in a narrow
lateral corridor, as you can see in Figure 89. At the same time, there is a negative
divergence that sparks a trend reversal. The Stop protection order was moved
below a support zone, throughout the increase of the value. Note the significant
increase in volume during the last period; the pros have already sniffed the
downward momentum of the stock.
The configuration still has a negative point: the Cloud should slow down or even
prevent the stock from sinking. Indeed, the Cloud could serve as a trampoline
and propel the stock higher. However, the more you move to the right, the more
the Cloud thins, decreasing the impact of the support. As the old saying goes,
“Take profits when you can and not when you want.”

Figure 89. Trading rules for selling on a daily chart

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As shown in Figure 90, validation with the help of the weekly chart is always
appropriate. Devon Energy has nice ripples and starts a sell signal at the same
time as the daily chart. This is a rare case because time frames, day and week,
usually provide conflicting alerts and signals.

Figure 90. Trading rules for selling on a weekly chart

The refusal to make a higher high and the break of the uptrend line by the
price is not inviting the trader to continue the adventure. This chart begins
to show weakness. We also note the double top, chart pattern of a downward
reversal, for the price and for the MACD indicator. Divergences and trend lines
are extraordinary techniques for showing trend reversals. These are tools to
remember when indicators do not generate crosses or breaks.

Trading rules for short selling

The trader who initiates a short position makes the reverse bet of a buy-sell
transaction. The trader sells a value he does not own and intends to buy it back
at a lower price to cash a profit. Mastering short-selling is an art. The window
of opportunity is smaller than a rising market, as market declines are usually
shorter. Positioning for the short sale requires the following rules:
1. The price is below the Base Line, which is going down
2. The price is below the lower level of the Cloud
3. The future Cloud (on the right) is red
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 TRADING RULES

4. The Lagging Span has fallen below the Cloud

5. The Directional Movement Index or MACD indicator is bearish
We are still forging ahead with Devon Energy. The time horizon has been shifted
moderately to plan the short-selling position. Note that Figure 91 shows fewer
periods to differentiate each component. All trading rules for short-selling have
been respected. As for the purchase, the Lagging Span Cloud break is required
to initiate a short sale.

Figure 91. Trading rules for short selling on a daily chart

The protective stop can be placed above the candlestick before the triggering of
the short sale which matches with resistance. The price went below the Cloud
in early September, dropped, and made a return. The Cloud played its role of
resistance. A false buy signal is present; the price has risen above the Conversion
Line, which has not turned upward.
And then the price started to fall again. There is also a significant increase
in volume for the last periods. An increase in volume confirms that the fall
in price is real and that the price movement had strength. A small wind of
panic is blowing in the markets. On the right, the Cloud is red and is pointing
downward. The MACD indicator shows a downward trend that does not seem
to be decreasing in intensity.

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Figure 92. Trading rules for short selling on a weekly chart

The weekly chart shows a good short-selling scenario: the price crosses below
the EMA34; the MACD indicator shows a downward move as well as the
Directional Movement Index ( ‑Di passes above the +Di). We also note the
thinness of the Cloud in mid-September, which projects weak support for
the price. Conditions are in place to start short-selling in daily mode. Trailing
stop orders must follow the movement of the stock price as the price falls. The
weekly configuration suggests a decline to $32, a level that has been achieved
twice in the past year. For the moment, this is only speculation.

Trading rules for closing a short position

Similar to the sale of a stock following the purchase, I reiterate my desire to take
my profits quickly following a short sale. To close a short position, four rules
are presented, but often only one will be required for me to take action. I hate
to leave profits on the table, but every situation is different, and that’s where
technical analysis makes sense:
1. The price has passed above the Base Line.
2. Breaking up of a significant trend line.
3. The Directional Movement Index or MACD indicator is bullish.
4. The price is above the EMA34 indicator.

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Figure 93 shows the rhythmic descent of Devon Energy after taking a short
position. Three of the four rules mentioned above are respected. The breakout
of the EMA34 indicator is missing. The Cloud, the Conversion Line, and the
Base Line are following the price closely. On several occasions, the price has
rebounded on the descending trend line that serves as resistance.

Figure 93. Trading rules to close a short position on a daily chart

The significant trend line spans nearly 50 periods. The break of this line sends a
strong signal of a trend reversal. Ditto for the reversal of the MACD indicator.
The duration of the downtrend is a strong incentive to cash in profits. The rise
in volume has been growing steadily for the past two months. An increase in
volume confirms that the rise in price is real and that the price movement had
strength. Before closing the short position, let’s analyze the weekly chart to
see how the long-term trend is shaping up.
Figure 94 shows a few signals to close the short sale on a weekly chart. The
figure shows an alert related to Ichimoku: the future Cloud is red. However, the
break of the downtrend line just supports the previous alert. The break of the
bearish trend line, which extends over a period of five months, represents the
strongest signal of this figure.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Figure 94. Trading rules for closing a short position on a weekly chart

The MACD indicator comes to put its grain of salt at the beginning of the trend
reversal. Also consider that the trader makes a profit of $14/share by closing
the deal. The increase in volume has been accentuated since September. Several
traders have liquidated their positions; new traders are entering the market. No
hesitation; I cash in my profits! Often the only view of the current gain on the
trading platform is enough to close a deal.

Trading traps to avoid

Trading has many pitfalls that derail multiple transactions. The traps can come
from external variables over which the trader has no influence. For example,
despite optimistic forecasts by financial analysts, bad economic news or huge
fraud could lead to the collapse of the financial markets. No indicator can
predict such events. However, the biggest trading trap is surely caused by the
trader himself from an apparent lack of control over his operations. It seems
difficult for the trader to keep the focus while social networks bombard him
with useless information.

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 TRADING RULES

Avoid social networks and specialists who offer trading platforms or lists of
miraculous stocks to sell. Invest in training and knowledge instead. Here are
some trading pitfalls to avoid before investing or closing positions:
ˬˬ Do not consider the Cloud as an obstacle to the price
ˬˬ Make the decision to invest in a single alert or indicator
ˬˬ Lack of rigor in the application of strategies
ˬˬ Believe that the market is always wrong
ˬˬ Have the sickly fear of losing
ˬˬ Trust others instead of learning
ˬˬ Do not validate the weekly orientation of a chart
ˬˬ Take unnecessary risks based on intuition
ˬˬ Set unrealistic goals
ˬˬ Delay taking profits

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CHAPTER 10

Ichimoku for Every Market

T
he Ichimoku Cloud can be used in any trading place, including the Forex
market. The word Forex comes from the contraction of the English
expression “Foreign Exchange,” which means currencies market. The
main advantage of Forex is that it operates 24 hours a day, five days a week.
Whatever your work schedule, it will be possible to trade every day of the week.
Forex offers different currencies like the Euro, the Dollar, and the Yen. These
currencies must be traded through pairs. When we look at the currency market,
we see the odds for each currency pair and not just one at a time. For example,
the EUR/USD currency pair is the ratio between the Euro and the US Dollar. By
buying a pair of EUR/USD currencies, we are betting on the rise of this ratio.
There is a panoply of currency pairs that can be traded. However, traders focus
on ten currency pairs:
ˬˬ Euro and US Dollar–EUR/USD
ˬˬ Euro and Swiss Franc–EUR/CHF
ˬˬ Euro and British Pound–EUR/GBP
ˬˬ Euro and Japanese Yen–EUR/JPY
ˬˬ British Pound and US Dollar–GBP/USD
ˬˬ British Pound and Yen–GBP/JPY
ˬˬ US Dollar and Canadian Dollar–USD/CAD
ˬˬ US Dollar and Japanese Yen–USD/JPY
ˬˬ US Dollar and Swiss Franc–USD/CHF
ˬˬ Australian Dollar and US Dollar–AUD/USD
Forex has a big disadvantage compared traditional markets: the offer is
not diversified. However, several Forex trading platforms have begun to
incorporate cryptocurrency into their product listings. This has contributed

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to the growth of the market which is now superior to the stock markets. The
advent of Bitcoin and cryptocurrency has attracted a new clientele of investors.
Some Forex platforms also offer to trade commodities (oil, gold, silver). These
currencies are easier to trade because they can be linked to traditional sectors
of global markets.

Bitcoin chart
Bitcoin was launched in 2009, following the crash of the financial markets. This
first virtual currency was created by Satoshi Nakamoto to set up a new monetary
system not controlled by a government or a central bank. Governments are
constantly devaluing their currencies to compete with other countries. This
cryptographic system was created with the aim of becoming a digital payment
system that disables all other currencies on the planet.

Figure 95. Bitcoin analysis

Figure 95 shows the rise of Bitcoin after the slaughter of the year 2018. The
price is trading in a lateral trajectory for a few months. Then, a Cloud Breakout
Strategy seems to emerge. All prerequisites are present:
Mandatory condition 1. The Base Line is bullish.
Mandatory condition 2. The color of the future Cloud has changed to green.
Mandatory condition 3. The Lagging Span is above the price of the 26th
previous period. On the other hand, the Lagging Span is located inside the
Cloud and could slow the ardor of some investors.

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Bitcoin continues its lateral displacement and finds support on the Base Line,
which remains above the Cloud. And then in early April, the price explodes and
gains more than 20% in a single trading session; the rise continues. Bitcoin
continued its uptrend and almost tripled in less than three months.

Precious metal chart

Palladium is a silvery-white metal that falls into the precious metals category.
It is a metal that has experienced a remarkable rise in recent years. Palladium is
part of the subcategory rare earth or rare-earth element. The precious metals or
commodity sector is not as cool as the technology sector but still has incredible
opportunities.

Figure 96. Palladium analysis

Figure 96 shows the daily chart of the US index for palladium. The price has
a downward trend that is rapidly reversing in mid-August. The break of the
downtrend line sends a powerful signal. Here are the conditions present in
connection with the Conversion Line/Base Line Cross bullish strategy:
Mandatory condition 1. The crossing takes place below the Cloud.
Mandatory condition 2. The price is located above the Cloud.
Mandatory condition 3. The Lagging Span is above the price of the 26th
previous period.
Optional condition. The future Cloud is green.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Take note of the powerful support generated by the Cloud in September.

The thickness of the Cloud means that there has been a significant number
of transactions below the $940 level. The Directional Movement Index just
nicely supports the prerequisites for a bullish Conversion Line/Base Line
Cross strategy.

Euro/Dollar chart
Currency trading on Forex is very popular; it is one of the largest markets in the
world. Scalp trading and day trading are present. Traders multiply trades in a
single day; currencies are rarely the subject of long-term trading. Professionals
like to work with lower time frames, from the M1 to the M5.
Take the Euro/US Dollar currency pair represented by the EUR/USD Forex
ticker in Figure 97. The M5 type chart is used. The class stayed below the Cloud
until 2 p.m. and flew above the Cloud for a few periods. Subsequently, there is
an upside breakout of the Cloud, and the currency pair continues to rise. Note
that the Lagging Span is completely isolated from the other indicators.

Figure 97. Analysis of the Euro/Dollar on the M5 chart

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 ICHIMOKU FOR EVERY MARKET

The EUR/USD currency pair has a configuration that meets the Lagging Span/
Cloud Cross strategy requirements:
Mandatory condition. The current price is above the Cloud.
Optional condition 1. The Base Line is on the rise.
Optional condition 2. The future Cloud is green.
The Conversion Line serves as support during the uptrend of the price. The
future Cloud and the trend are on the rise. Caution is needed because the
currency market requires traders to quickly take profits. Climbs that last a lot of
days are rather rare in Forex. It takes discipline to sell fast without hesitation.
Ichimoku takes all the place in the currency market. Traditional indicators are
less and less used. Western markets have no choice but to adjust if they want
to compete on equal terms with the Eastern markets. Considering that Forex
analysis and investments are often done from a smartphone, Ichimoku is the
appropriate solution to rapidly analyze financial securities. A single screen can
be used to see the zones where we can negotiate or not.
Strategies can adapt to any situation and any time frame. I urge you to be
careful if you get into Forex. Avoid using the leverage that can ruin you in a few
transactions. Take the time to read specialized books before diving into this
explosive market.

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CHAPTER 11

The Unexplored Area

B
y using Ichimoku, one comes to develop the reflex of using a particular
strategy in the face of a situation repeatedly expressed. It is the same
for other circumstances we abstain from because the configuration does
not respect the conditions issued by one of the strategies described above. This
chapter is merely exploratory and should not be considered a new strategy. It is
simply a matter of highlighting a risk area that can yield good profits.
The trading strategies and rules presented so far were aimed primarily at traders
with medium risk tolerance. The reduction of risk implies the prospect of a lower
profit. Frequently, opportunities arise, but we leave the opportunities aside by
saying that it is better to wait for a confirmation signal supported by other
indicators. I admit it for this chapter; I take my distance from the strategies,
and I lean a little on irrationality. Quite simply, I am exploring.
We can certify that the majority of traders prefer the purchase compared to
the short sale because the purchase is judged to be more logical. It’s human
nature to watch a bullish run. Technical analysis is useful for predicting buying
or selling scenarios. We scan the charts for an opportunity to take the stock to
a higher level. The trader already identifies the potential target before taking
a position in the markets.

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The Cloud remains at the center of our concerns because it acts as a trigger. This
observation raises questions about an unexplored area, the underside of the
Cloud. So, why do we always base our long strategies on the Cloud breakout?
Why not opt for a strategy that targets the Cloud? Is it not frustrating to wait
for a Cloud crossing, following the decline of a financial stock that has lasted
too long? Let’s continue with a simple example. As you can see in Figure 98, the
share price of Microvision has been in decline for at least 50 periods. At the end
of October, the price goes below the Cloud and below the Base Line.

Figure 98. Area of potential gain on a daily chart

Sooner or later, the price will reverse the trend, which will be confirmed by two
or three indicators. In reality, the distance between the current price and the
Cloud represents an interesting potential. Especially since the resistance zone
is clearly identified. The Ichimoku system suggests buying when the price or
indicators break above the Cloud. Conversely, the system implies selling when
the price reaches the Cloud.
The situation described above is frequent during long bearish periods. The
Cloud is set back and parallel to the price curve. It is this gap that offers an
interesting potential profit. The further the Cloud is from the price, the better
the prospect of profit. On the other hand, a trend reversal too slow will end the
opportunity because the price will be stumbling on the Cloud.

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 THE UNEXPLORED AREA

I used three indicators to analyze the trend reversal that occurred in December:
the MACD indicator, the Directional Movement Index, and the EMA26 indicator,
similar to the Base Line. After confirming these three signals, we can believe in a
trend reversal. It’s time to use another time frame, as you can see in Figure 99.

Figure 99. Zone of potential gain on the H2 chart

From the Triple Screen technique, use an H1 or H2 graph to see how the stock
reacts on a smaller scale. All conditions meet the Cloud Breakout Strategy.
Mandatory condition 1. Base Line is pointing upward.
Mandatory condition 2. The color of the Future Cloud is Green.
Mandatory condition 3. The Lagging Span is located above the price of the
26th previous period.
The purchase can be triggered, but the trader must switch between the H1
or H2 chart and the daily chart to sell at the slightest sign of slowing down.
The mutation of a daily chart in a day to the H1 or H2 chart brings out all the
versatility of Ichimoku. The trader is not constrained by time frame changes
because the analysis remains exactly the same. No adjustment of Ichimoku
settings is necessary. The signals, the rules, and the strategies remain the same.

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CHAPTER 12

Anatomy of a Bear Market

A long bear market, like the one in 2022, is a painful experience for anyone
new to trading. The new generation of traders has never experienced a bear
market like this before, the most recent being in 2008. Playing the guessing
game and going long in a bear market is the worst strategy for eating into a
portfolio. However, the signs of a downward reversal in the markets have been
apparent for quite some time to the experienced investor who knows technical
analysis. The parabolic rise in stock prices, the high volume of transactions, and
the influx of capital have created a speculative bubble that would sooner or later
lead to a market reversal.
From 2009 to 2022, the growth of the global economy was not the only reason
for the rise in stock market indexes. The numerous quantitative easings carried
out by the U.S. Federal Reserve (Fed) combined with abnormally low interest
rates for the past 15 years have contributed to the creation of the largest
speculative bubble of all time. Stock market indexes benefited from a generous
monetary policy throughout the world. Banks used these funds to invest,
invest, and invest again.

The Bitcoin Crash

A distinction must be made between a stock market crash and a bear market.
The stock market crash, which is rather rare, is usually within a bear market
and refers to the period when the fall is most severe. The crash is the moment
of panic in a bear market. The crash occurs as a result of the bursting of a
speculative bubble created by overconfidence and an exaggerated rise in the
markets. The crash is the period of capitulation of investors. Emotionality is at
its peak, and investors, completely discouraged, liquidate their positions.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

One of the fastest falls was on Black Monday in October 1987, when the Dow
Jones index lost nearly 40% in less than 10 days. Uniquely, the index quickly
turned around and erased its losses in less than 12 months. The bursting of the
dot-com bubble in 2001 caused the Nasdaq Index to initially fall 30% in less than
three weeks. By the time it bottomed in 2002, the index had lost nearly 80% of its
value. It took 17 years for the Nasdaq index to surpass the level reached in 2001.
More recently, a crash occurred in February 2020 when a state of emergency
was declared following the arrival of the pandemic. This is the kind of crash
that is impossible to detect because it happens without warning. It should be
remembered that the entire economy of the planet was put on pause in less
than a day. The vertiginous fall, which started in February 2020, lasted five
weeks and could be wiped out in less than 12 weeks. Another crash occurred
at the end of 2021 and affected the entire cryptocurrency sector. Bitcoin lost
30% in less than 30 days. The following daily chart shows the key elements to
consider when identifying Bitcoin’s top and subsequent reversal:
ˬˬ 1. There is a negative divergence between the Bitcoin price and the MACD
indicator. The price has touched the $68,000 threshold to begin a descent.
ˬˬ 2. The price breaks the trendline and initiates a sell signal that meets
the requirements of the Base Line Cross strategy, supported by the ‑Di
indicator of the Directional Movement Index and the MACD indicator.

Figure 100. The fall of Bitcoin in December 2021

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As shown in Figure 100, the value of Bitcoin has increased sevenfold in just over
a year, from $10,000 to $68,000. It is difficult to understand the irrationality
of this rise. There are mechanisms beyond our control that can explain the
meteoric rise of the stock market indexes and Bitcoin since 2009. Investors
owe a big vote of thanks to central bank intervention.

Quantitative easing
Quantitative easing is associated with the release of new bank bills issued by
central banks in different countries. Roughly speaking, the influx of additional
liquidity into the global banking system leads to lower interest rates that
encourage taxpayers and companies to spend and invest. The Fed and the
European Central Bank (ECB) printed hundreds of millions of dollars from
2008 to 2020. Specifically, from 2008 to 2015, the Fed doubled its previous
money supply. From 2020 to 2022, the money supply doubled again.
The increase in the money supply has increased the presence of banks in the
stock markets and pushed stocks to unrealistic highs. All this stock market
hyperactivity has contributed to a tripling of stock market values in less
than 10 years. Quantitative easing is one of the most influential factors in
explaining the rise of the stock markets as well as the rise of the cryptocurrency
market. Figure 101 shows the monetary easing done by the Fed as well as the
so-called official recession periods since 2003. Surprisingly, many countries
have decided to change the formula for calculating a recession to reassure the
financial markets.

Figure 101. The U.S. monetary policy picture since 2003

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

The Fed printed over $5 trillion during the pandemic to stimulate the U.S.
economy. The situation was reversed in December 2021 when inflation had
been going on for nine months. All this economic growth was purely artificial.
Unfortunately, the media is inclined to make us believe that the economy is doing
well. Taxpayers will have to bear the brunt of rising inflation as a counterweight
to the unlimited printing of central banks.
Figure 102 shows the correlation between quantitative easing and the Dow
Jones index since 2003. The 2008 Dow Jones drop was countered by the first
QE, which ran from December 2008 to March 2010. Like the Dow Jones, other
stock markets reversed upward. The next two QEs, from November 2010 to
June 2011 and the one from September 2012 to December 2013, contributed
to the subsequent rise in the index. The February 2020 crash was also countered
by the last quantitative easing, which ran from March 2020 to March 2022.

Figure 102. The correlation between the Dow Jones index and quantitative easing
The numerous quantitative easings led a whole generation of investors to
believe that the markets would be bullish forever. The surge in inflation forced
the Fed to rethink its strategy. It had to raise interest rates, stop quantitative
easing, and begin quantitative tightening, which is the removal of bank bills
from circulation since 2020. Over the next few years, pay attention to the Fed’s
actions. Its influence on the stock markets and cryptocurrency is stronger than
we would like to believe.

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Nasdaq–Before the markets fall

The financial markets experienced a vertiginous rise from 2009 to 2022, with
the exception of the crash of February 2020, when the pandemic broke out. The
crash only lasted a few weeks, thanks to the quick intervention of the Fed. Here
is the weekly chart of the Nasdaq index from September 2019 to January 2022:

Figure 103. Nasdaq Index from 2019 to 2022

1. The Nasdaq stock price peaked at 9,838 in February 2020, just before the
global economy was neutralized by the pandemic.
2. The price reaches a low of 6,631, a 32% drop in four weeks.
3. In February, the Fed confirms quantitative easing that will extend from
March 2020 to March 2022. During this period, the Fed will double its
money supply. The price quickly crosses the Cloud and generates an
unequivocal buy signal. The price outperforms the Conversion Line and
the Base Line. The configuration meets the conditions of the Base Line
Cross strategy. At the same time, the Directional Movement Index and
the MACD indicator show bullish pressure from the buyers.
4. The presence of a huge negative divergence indicates that the uptrend
could reverse. This is a possibility, not a certainty. It is a warning to
be cautious because the longer the divergence, the more significant it
becomes.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

5. The Directional Movement Index shows bearish pressure from sellers;

the ‑DI indicator is above the +DI indicator. The ADX indicator turns
upward; the strength of the trend increases in power.
6. The MACD indicator remains bearish since February 2021; there is an
acceleration of the decline.
7. The Nasdaq index breaks the uptrend line and at the same time meets
the requirements of the Base Line Cross strategy. The Ichimoku 7-22-
44 parameters are applied in times of uncertainty, raised by the hasty
reaction of other trend indicators such as MACD and by the negative
divergence.
8. Note the flattening of the green cloud to the right; a plateau is forming.

Nasdaq–Trend reversal
A market evolves in a trend, and the use of weekly charts allows the investor to
navigate in a calmer sea. Instead of getting a dozen sell signals in a year for an
index or a stock, the investor will only get two or three. This is the ideal solution
for investors who lose control of their emotions at the first sign of trouble. It is
understandable that the signals are delayed compared to the signals generated
by a daily chart. Profits will be lower because the trader cannot take advantage
of the range of gains that the daily chart provides. Figure 104 focuses on the
eventful months of January and February 2022. The Nasdaq index is falling
rapidly; a sense of panic is taking over the market.
1. The index breaks the uptrend line and thereby meets the requirements
of the Base Line Cross strategy. The Fed plunges the markets in early
February 2022 by announcing its commitment to abandon pandemic-era
stimulus and engage in quantitative tightening.
2. The Nasdaq Index breaks the Cloud to the downside and meets the
conditions of the Cloud Breakout strategy with a strong bearish signal.
3. The Directional Movement Index shows increasing bearish pressure,
supported by the ADX indicator which has reached the critical
threshold of 24.
4. The MACD indicator is falling rapidly; the descent is confirmed by the
distance between its two curves.

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 ANATOMY OF A BEAR MARKET

Figure 104. Nasdaq Index Turns Downward

Nasdaq – The fall of the index

Investors, who have lost money in a bear market, want to recoup their losses
as quickly as possible. This leads to an excessively dangerous game of guessing
what the next market reversal will be. This duel is extremely costly to traders
because the market keeps providing false hope. Bear markets are difficult for
investors to pinpoint, as the loss of emotional control comes into play more
than ever. A sell signal on a weekly chart is rarer than on a daily chart. The
trader has two options: sell his long positions or selling short. Taking losses,
the trader constantly wants to recover, anticipating a market reversal. Instead
of following the weekly trend, he relies on the daily jolts.
The decline of the Nasdaq index in 2022 is nothing like the drastic fall of the
Dow Jones in October 1987. The descent is slow, and one can feel the fight
between the bulls and the bears. The addition of the Volume by Price indicator
is helpful in anticipating bullish rebound areas. This allows traders to engage
in day trading and pocket some gains while waiting for the index to regain its
medium-term uptrend. The next chart covers a longer period, from July 2018
to October 2022.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Figure 105. The fall of the Nasdaq index in 2022

Here are the highlights of the Nasdaq’s fall:

1. The addition of the Volume by Price indicator helps to better define
future support and resistance areas. The dotted lines combine the best
between the Nasdaq index bounces, the long horizontal bars of the
Volume by Price indicator, and the Cloud.
2. The crossing of the Conversion Line indicator above the Base Line
indicator should be seen as a buy signal. However, the configuration does
not meet all the conditions of either strategy. The crossover should be
seen as a false signal. The red Cloud confirms that the market remains
bearish on the weekly chart.
3. The bearish pressure of the Directional Movement Index continues.
4. MACD indicator remains in negative territory.
Quantitative easing has propelled stock market indicators and cryptocurrency
to exceptional levels. Normally, quantitative tightening would drive the markets
lower. However, as tightening is done in small doses week after week, the impact
is reduced by that much. It is rather the announcement of the quantitative
tightening that has shaken the financial markets. The stock market is a market
of anticipation, the news having more impact than the realization.

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Another important factor is that interest rates have an impact on the progress
of financial markets. Rising interest rates, which are used to counter inflation,
encourage companies to reduce their investments, which is detrimental to the
recovery of the economy and the return of the stock market to growth.

The end of the bear market

A bear market can last from a few months to a few years, depending on the
strength of the previous bullish wave and the sharpness of the fall. As we
have seen several times, before going long, the investor should wait for the
confirmation of a bullish signal from one of the Ichimoku strategies, combining
other trend indicators. One of the best examples is Figure 73, featuring the
company Micron. The chart shows an upward trend reversal on a weekly chart.
The end of a long-term bear market inevitably requires the presence of a buy
signal on the weekly chart, regardless of the stock, cryptocurrency, or stock
index. As long as this signal is not generated, the investor should stand on the
sidelines. The impatient trader may as well use a daily chart as a preparatory
strategy. The weekly chart signal should follow in the following weeks unless
external factors disrupt the markets again.
The investor cannot deny the close correlation between quantitative easing and
the rise of stock markets, including the cryptocurrency sector. The monetary
policies of central banks strongly influence the financial markets. The trader
should closely monitor the decisions of the Fed, the European Central Bank,
and the Bank of England.
There are some questions that need to be raised. Will the Fed continue the
quantitative easing as planned? Will the other banks follow suit? What will be
the impact of higher interest rates on the global economy? Will the political
pressure on central banks lead the economy into a total drift?
These questions will need to be raised whenever there are changes in the Fed’s
monetary policy, as the U.S. remains the nerve center of the world’s financial
activity. Follow the economic news closely and watch the direction of the markets
as a result of decisions made by the Fed and other central banks. However, this
is not a simple rule of three. The market rally propelled by quantitative easing
could be countered by new monetary strategies.

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Trading on a short-term horizon

In a bear market, rebounds represent a short-term opportunity. In times of
uncertainty, I prefer to shorten my time horizon by using H1, H2, or H4 charts.
First, I identify stocks whose momentum and volatility indicators are at their
lows. Then, I draw support and resistance lines to anticipate rebounds. I apply
the 7-22-44 parameters to the Ichimoku to get alerts and signals faster. I closely
monitor the reversal of conventional indicators. I enter the market when the
stock meets the conditions of any of the Ichimoku strategies.
At the end of October 2022, the tech sector is pulling the cryptocurrency
market higher. Bitcoin is about to break a huge bearish triangle to the upside.
Riot Blockchain stock is on my watch list. This company is focused on mining
cryptocurrency coins and tokens in North America.

Figure 106. 1-hour chart of Riot Blockchain

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Here are the key profit-taking elements:

1. The Chaikin Money Flow indicator moves into positive territory as buyer
pressure builds.
2. The buy signal meets the conditions of the Base Line Cross strategy. At
the same time, the +Di indicator moves above the ‑Di indicator, and the
ADX indicator shows a rather weak trend. The MACD indicator confirms
the bullish reversal.
3. The rapid rise is supported by high volume. The position is closed after a
few hours.
Short-term trading is not for everyone. Markets are much more volatile in
a long downturn, as the slightest news influences prices. This requires close
monitoring of stocks; discipline is required more than ever. The trader must
learn to sell on the rise of the price without waiting for the stock to fall.

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130
CONCLUSION

W
ithout a doubt, the Ichimoku Cloud system remains the most
beautiful addition to technical analysis for twenty years. An oriental
approach that is completely different, offering the trader the
opportunity to invest at a lower risk. Even if some mention that it is a method
that attracts the less curious, there is still a sharp surge in volume during the
upside breakout of the Cloud. Most Forex traders exclusively use Ichimoku.
The failure of the trader is often the result of entering a consolidation period
or a trading range. The trader loses a lot of time waiting for the situation to
correct. Moreover, the trader often liquidates his positions in an uncontrolled
state of panic. Ichimoku corrects this problem through Cloud generation. Any
indicator that passes above the Cloud becomes a buy signal to varying degrees.
Conversely, any indicator that crosses below the Cloud becomes a sell signal.
The Ichimoku system is not flawless. The system reacts slowly when the price
is reversed too quickly, causing a delay in triggering the signals. This delay
can be offset by a downward revision of Ichimoku settings, by adding other
conventional indicators, or by reducing the time frame of the stock chart. There
is no magic way to generate winning trades every time. A financial market is
not an arithmetic model as many suggest. The combination of different rules
and indicators allows the trader to invest at the very beginning of the trend to
mitigate the risk and, at the same time, maximize the gains.
Some experts would say that they are making money because they have found
a miraculous solution, which they are selling at a high price. Professionals do
not make money because they use a magic system. It is quite possible that
your system is more efficient. Above all, they control the risk by cutting short
any situation deemed dangerous. One way to get over losses quickly is by
recognizing that the chances of winning are not always in our favor.

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ICHIMOKU CHARTING & TECHNICAL ANALYSIS

132
 GLOSSARY

GLOSSARY

Accumulation The period in which informed traders buy (accumulate) stocks.

Accumulation Zone A rectangular-shaped formation produced when insiders and
investors purchase shares. The chart is characterized by small
price movement but relatively strong volume.
Base Line The Base Line or Tenkan-Sen Line is one of the six components
of Ichimoku. It represents the average of the highest and the
lowest level of the last nine periods.
Bear Correction A temporary price retracement in a declining market.
Bearish Negative stock market sentiment when prices are mainly
declining.
Bearish Divergence A bearish divergence occurs when the price and the technical
indicator move in opposite directions: the security makes
higher highs, but the indicator is making lower highs. Bearish
divergence signals a near-term turning point in the trend.
Bear Trap Sends a signal that the rising trend of a stock has reversed
when it has not. Instead of declining further, the stock price
stays flat or becomes bullish.
Blow off The final phase of an uptrend with a sharp price increase,
followed by a sharp decline.
Blue Chip Stock Refers to a well-known public company that delivers high-
quality earnings and have solid fundamentals.
Breakdown The breaking of a downward trend. The point at which the
stock price breaks out of support zone. A falling price below a
support level.
Breakout The breaking of an upward trend. The point at which the stock
price breaks out of resistance zone. A rising price above a
resistance level.
Bullish Positive stock market sentiment when prices are mainly rising.
Bullish Divergence A bullish divergence occurs when the price and the technical
indicator move in opposite directions: the security makes
lower lows, but the indicator is making higher lows. Bullish
divergence signals a near-term turning point in the trend.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Bull Trap Sends a signal that the falling trend of a stock has reversed
when it has not. Instead of increasing further, the stock price
stays flat or becomes bearish.
Buy Signal Represents a good time to buy a stock, triggered by some
indicators.
Buying on Margin Buying on margin is borrowing money from a broker to
purchase an asset.
Channel An area where the price of a stock bounces up and down its
support and resistance levels.
Closing the Gap Consists to close the range where there is no transaction caused
by a gap down or a gap up. It could take a lot of periods to fill a
gap.
Cloud The Cloud or Kumo is one of the six components of Ichimoku.
The Cloud is the space between Leading Span A and Leading
Span B. The Cloud is projected 26 periods into the future.
Cloud chart Name given to graphics using the Ichimoku system.
Commodities Commodities are basic goods that come out of the earth such
as wheat, cattle, soybeans, corn, oranges, gold, uranium,
copper, aluminum, coal, cotton, and oil.
Continuation Patterns that lead to the continuation of the existing trend.
Pattern Some of the most trusted patterns are: Ascending triangle, Bull
flag, Bullish pennant, Cup-and-handle, Rounding bottom.
Consolidation A zone where a stock trades within limited trading range
without much movement. Neither the bulls nor the bears can
predict when a stock will breakout or breakdown.
Contrarian An investor who invests against the crowd.
Conversion Line The Conversion Line or Kijun-Sen Line is one of the six
components of Ichimoku. It represents the average of the
highest and lowest level of the last 26 periods.
Correction A move in a stock which is opposite to the primary trend but
not sufficient to alter the primary trend.
Crossover A point on a chart where a stock price intersects the line of an
indicator like SMA or EMA. It could be a crossover between
two indicators.
Daily Range Represents the difference between the day’s high and the same
day’s low.
Death Cross A point where the 50-day moving average line crosses below
the 200-day moving average line.
Distribution The period in which informed traders sell (distribute) stocks.
Doji A pattern in a candlestick chart that represents a small trading
range. A doji represents an indecision in the market.

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 GLOSSARY

Downtrend A downward movement of a stock price when successive highs

are lower than the previous highs and successive lows are lower
than the previous lows.
Fibonacci Sequence Ratios used to identify potential reversal zones based on the
Fibonacci sequence (1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, . . . )
and the Golden Ratio at 1.618.
Flag A chart pattern that shows a flagpole holding a pattern
encompassed by two parallel lines. The flag is a continuation
pattern that marks a pause before the continuation of the
primary trend.
Fundamental The study of a company’s health and performance that helps
Analysis investors identify the long-term performance. This is the best
way to compare company with competition and sector.
Gaps Gaps are spaces left on the bar chart or candlestick chart
where no trading has taken place. A gap up is formed when the
lowest price on a trading day is higher than the highest high
of the previous day. This is a sign of market strength. A gap
down is formed when the highest price on a day is lower than
the lowest price of the previous day. This is a sign of market
weakness.
Golden Cross A point where the 50-day moving average line crosses above
the 200-day moving average line.
Index A group of stocks used as a reference by financial markets.
Ichimoku Cloud A versatile indicator used to represent price movements; it
identifies trend direction and provides areas of support and
resistance. Also called the clouds charting method.
Indicator A tool that uses sets of algorithms that aids in predicting the
current or future trend of a stock. (Bollinger bands, MACD, RSI)
Lagging Span Lagging Span or Chikou Span is one of the six components of
Ichimoku. Lagging Span is a replica of the closing price of a
stock that is shifted by 26 periods in the past.
Leading Span A Leading Span A or Senkou Span A is one of the six components
of Ichimoku. Leading Span A (green) represents the central
point between the last value of the Conversion Line and the
Base Line. The result is projected 26 periods into the future.
Leading Span B Leading Span B or Senkou Span B is one of the six components
of Ichimoku. The Leading Span B (red) is represented by the
middle of the range between the top and the bottom of the last
52 periods. The result is projected 26 periods into the future.
Market Cycle A serie of bull and bearish phases.
Morning Attack A large buy or sell in the first 30 minutes of a trading day.
Money Flow Shows the relationship between cash flow towards a stock and
its price.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

Neckline Refers to the support or resistance level on a Head-and-

shoulders pattern.
Oscillator An indicator that shows overbought and oversold condition for
any stock.
Overbought When an indicator reaches an upper level, chances are that
price has risen too far. A sell-off could start soon.
Oversold When an indicator reaches a lower level, chances are that
price has dropped too far. The security is due for an upward
movement.
Pennant Pattern that shows price ranges that narrows down through a
decreasing channel. A pennant is a continuation pattern that
marks a pause before a breakout.
Pivot Points An indicator that determines key support and resistance levels.
Pivot points are useful in determining entry and exit points.
Price/Earnings Ratio The price-to-earnings ratio (P/E ratio) is measured by dividing
the price of a stock by the company earnings per share.
Price Patterns Figure that appears on candlestick charts and that has
predictive value like an uptrend, a downtrend or a divergence.
Pullback A significant short-term reversal in the price of a stock which
drops back down after a nice run.
Pump-and-Dump A form of fraud that involves artificially inflating the price of
a stock through false and misleading positive statements on
social media in order to sell the stock at a higher price.
Rally A significant short-term reversal in the price of a stock which
rises after a period of decline.
Resistance A higher level where the stock price could hit during the surge
of a stock. A lot of sellers will slow or even reverse the uptrend.
Retracement A reversal in the price of a stock. Becomes popular with the
tool Fibonacci retracement that shows possible reversal points
of a stock price.
Reversal A trend that is moving back in the opposite direction.
Reversal Pattern Patterns that lead to a change in the direction of a stock
price away from the current trend. Some of the most trusted
patterns are: Double bottom and double top, Falling wedge
and rising wedge, Head-and-shoulders bottom and head-and-
shoulders top.
Sector Represents a group of companies that produce and sell the
same kind of products.
Sell Signal Represents a good time to sell a stock, triggered by some
indicators.

136
Short Selling Short selling is the sale of a security that is not owned by the
seller or that the seller has borrowed in the hope that the price
will go down.
Support A lower level where the stock price could hit during the
decline of a stock. A lot of buyers will slow or even reverse the
downward trend.
Trading Range Spread between the high and low prices traded during a period
of time.
Trend The directional movement of a stock price.
Uptrend An upward movement of a stock price when successive highs
are higher than the previous highs and successive lows are
higher than the previous lows.
Volatility A measurement of change in market price over a given period
and the comparison to historical values. Volatility measures
the risk of a security.
Volume The number of shares traded on a stock exchange during a
period of time.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

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138
REFERENCES

Trading for a Living: Psychology, Trading Tactics, Money Management, Alexander Elder,
John Wiley & Sons, 289 pages, 1993.
Encyclopedia of Chart Patterns, Thomas N. Bulkowski, John Wiley & Sons, Second edition,
1040 pages, 2005.
Secrets For Profiting in Bull and Bear Markets, Stan Weinstein, McGraw-Hill Education,
368 pages, 1988.
The Master Swing Trader: Tools and Techniques to Profit From Outstanding Short-Term
Trading Opportunities, Alan S. Farley, McGraw-Hill Education, 443 pages, 2001.

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 ICHIMOKU CHARTING & TECHNICAL ANALYSIS

I
INDEX Ichimoku strategies 61

J
Japanese candlestick 15
Japanese candlestick chart 15
Japanese candlestick patterns 24
A
L
Alert 29
Average Directional Index 91 Lagging indicators 24
Lagging Span or Chikou Span 40
B Leading indicators 23
Leading Span A or Senkou Span A 37
Base Line or Kijun-sen 34 Leading Span B or Senkou Span B 38
Bear Market 119 Linear chart 13
Bitcoin 110
Black Monday 120 M
Bollinger Bands 24
Buy-and-hold 17 Market crash 119
Minus Directional Indicator (-Di) 91
C Momentum 23
Moving Average Convergence Divergence
Chart patterns 22 MACD 24
Clarity of the curves 49
Cloud or Kumo 43 N
Components of Ichimoku 29
Conversion Line or Tenkan-sen 31 Number theory 51
Crash 119
O
Cycle of market emotions 27
OHLC bar chart 14
D OHLC bars 14
Day trading 17
P
Directional Movement Index 91
Divergences 26 Plus Directional Indicator (+Di) 91
Downside breakout 20 Position trading 17
Precious metals 111
E
Q
Equilibrium 6
Exponential Moving Average EMA 24 Quantitative easing 121
Quantitative tightening 122
F
R
Federal Reserve 119
Fibonacci 55 Rate of Change ROC 24
Forex 109 Relative Strength Index RSI 24
Resistance 18

140
 INDEX

S
Scalp trading 17
Simple Moving Average SMA 24
Stochastic 24
Support 18
Swing trading 17

T
Trading rules 97
Trading signal 29
Trading traps 106
Trend 6
Twist 39

U
Upside breakout 20

V
Volume 21

Z
Zone of resistance 9
Zone of support 9

141