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Ichimoku Charting

How to read the Clouds


for Profitable Advantage

David Linton CFTe MSTA


Chief Executive Updata plc
david@updata.co.uk

Technical Analyst European Conference 2007


What I will cover

• Theory, Construction, Interpretation


• Market Examples of Ichimoku
• Some Further Ideas
• Summary Points

Technical Analyst European Conference 2007


My Preferred Techniques
What I Use Use Very Little
• Optimised Stoplosses • Relative Strength
• Support & Resistance • Moving Averages
• Point & Figure • Candlesticks
• Volume & Breadth • Elliot Wave
• Proprietary Indicators • Gann/Swing
• Flip Charts (inverted) • Fibonacci
• Most Oscillators
• ICHIMOKU

Technical Analyst European Conference 2007


Ichimoku Kinkou-hyou - Definitions
• translates from Japanese into English as "one look.“
• a glance at equilibrium prices
• analyses the mid-points of historical highs and lows
• are trend following indicators
• can be used in a way similar to moving averages
• allows for wider support and resistance zones
• decreases the risk of trading false breakouts
• conveys a great deal of information on trend
existence, direction, support and resistance

Technical Analyst European Conference 2007


Ichimoku Example

Technical Analyst European Conference 2007


Cloud Construction
For me main purpose of these two lines:
1 – The ‘mid-point’ of last 9 sessions
2 – The ‘mid-point’ of the last 26 sessions
Is to construct the cloud:

3 - The ‘mid-point’ of the last 52 sessions offset 26 bars forward


4 - The ‘mid-point’ of Lines 1 & 2 offset 26 bars forward

NOTE: The Offset is the same, helps to you understand the cloud

Technical Analyst European Conference 2007


The Cloud

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You can change the settings
Instead of 9,26,52 - could use 13,34,55
It is argued that Ichimoku is self fulfilling
and works because these are the settings
used by the Japanese

Technical Analyst European Conference 2007


How you read it
Above the Cloud is Bullish

Below the Cloud is Bearish

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What about in the cloud?

Depends on But also


where we Potential
entered Transition
from
Bullish

Depends on
where we
entered
from
Bearish

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Cloud Thickness & Steepness
Thick Clouds mean
price is accelerating
shorter term – 17
outpacing 52 –
moves not enough
to be felt by 52
THICK NORMALLY
TURNING POINTS

Red Line ?
effectively a
(9+26) – Say 17 Thin means 52 period and 17 bar
Period MA at 26 averages are close or MORE
periods ago NORMALLY price acceleration is very
IT DRIVES THE rapid – ie 52 moving too. Thin clouds
CLOUD TREND are therefore normally steeper and
short lived. Price will be a long way
from the cloud. THE BIG MOVES

Blue Line effectively a 52 Period MA at 26 periods ago

Technical Analyst European Conference 2007


4 Big advantages of the cloud

• Gives Resistance Areas, less whipsaws


• Trend position is clear – Bull or Bear
• Switch Daily, Weekly, Monthly works well
• Cloud area is projected into future

Technical Analyst European Conference 2007


What’s Your Time Horizon?
VERY VERY
SHORT MEDIUM LONG
SHORT LONG
VIEW HOURS DAYS WEEKS MONTHS YEARS
ICHIMOKU MINS HOURS DAILY WEEKLY MONTHS
P&F - 0.5% 1% 2% -

Trend Analysis, P&F, Volume, Indexia Indicators, Optimised Stoplosses

MAs, Ichimoku, Relative Strength, Market Breadth

Oscillators, Candles, Other

Technical Analyst European Conference 2007


The Lagging Line
5 – The Price Line shifted back 26 bars

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Some Subjective Judgement
Will the Price pull
Lagging Line out of
the Cloud?

A Full Cloud Cross


is bearish meaning OR This wasn’t a
we have entered the proper cloud breach
cloud from below and we are still
and still in the cloud bullish in the cloud
NO FULLY BULLISH from above
SIGNAL YET

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The ‘Potential’ Signals
• The lagging span crossing the cloud
• The price line finding support* on/in the cloud
• The Price line crossing cloud - Earlier/Riskier
• Turning Line & Standard Line Cross - extremes
• Spans 1&2 crossing – cloud cross
• Wide cloud and narrow cloud & distance from

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Great for making Big Calls

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Look at 4 time frames together

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Ichimoku Read at a Glance

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Market Examples
• Equity Indices
• Forex
• Commodities
• Fixed Interest
• Equities

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US Market

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US Ultra Long Term

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Weekly – Still a Bull Market

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Risk Points and Weighting

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Japan – New Bull Market?

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Long Term Levels – ST Struggle

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Weekly found Support

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Daily for risk points and weighting

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UK Footsie Ultra Long Term

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Monthly – New Bull Market

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Weekly will tell us when we end

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Use Daily for Risk Points

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Cable – Ultra Long Term

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Cable Monthly

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A wobble in 2005

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Daily support is good

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Hourly currently bearish

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But 5 Minute is Bullish

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Eurodollar Weekly

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Daily testing support now

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Hourly on Eurodollar

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Oil !!

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Weekly looks BAD

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Daily suggests freefall

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Gold finding support

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Gold looking bullish on daily

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Bund Monthly

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Bearish on Weekly

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And Daily

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Hourly is Turning

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10 Minute Chart

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US 30 Yr T-Bond

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Hourly 10 Year

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Scanning Equity Universes

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Nikkei 225 Stocks

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US S&P 500 Stocks

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DJ Stoxx 600

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Kingfisher

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Meggitt

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Misys

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Older than 3 Weeks break

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Here too…just

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Not broken yet

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Statoil – Not a cross

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Older than 3 weeks, but good

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Electrocomponents

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Google

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BP – In the News

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Weekly Terrible

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Maersk

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Ichimoku quick for TA Scoring

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Ichimoku Market Breadth?

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Backtesting

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Potential Problems
• The charts can be very noisy – lots to read
• Daily often too noisy – Weekly & Monthly best
• Not meant to work well on Intra-day data
• Not really a trading signal as such

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A few pointers
• If hasn’t worked well for a chart don’t use it
• It’s another technique in your armoury
• Look at all 3 Time Horizons Together
• Use Weekly charts most – a good change
• Run scans to get to the best charts

• Don’t tell everyone, they will think you are odd

Technical Analyst European Conference 2007


Ichimoku Charting
How to read the Clouds
for Profitable Advantage

David Linton CFTe MSTA


Chief Executive Updata plc
david@updata.co.uk

Technical Analyst European Conference 2007