Time Periods and Summary of Principles
Hosada apparently put a lot of effort into optimizing the time periods used, especially as this was in the 1930s before the availability of computers. The periods of nine, 26 and 52 candlesticks or bars seem to work best, whatever the time scale, but this is obviously one place where some experimentation may fine-tune the application. It seems that nine days originally came about because it was one and a half times the six day Japanese trading week, and 26 was the number of days in a Japanese trading month. The number 52 is just two trading months. It’s not clear why these numbers continue to function well, even though trading habits have changed.
One suggestion generally made about technical indicators is that the time periods used are self-fulfilling, as many traders are looking at the same information. This shouldn’t really apply to Ichimoku charts because they are only just starting to be used in the West, although this could be a factor in the Japanese markets.
If you want to adopt Ichimoku charts in your trading, I’d recommend you stick with the standard periods until you become very familiar with them. You will achieve much more by attaining proficiency in the reading of the charts than by any tweaking of the numbers.
Finally, as with many technical indicators, the Ichimoku technique only works well when there is a definite trend. If the chart is going sideways for a time, the result may be meaningless, particularly when you consider the time shifting involved in producing the chart and indicators. Sometimes it will help to look at a different timescale for evidence of any trend.
Summary of Principles
- the price above the cloud is bullish
- the price below the cloud is bearish
- the price in the cloud still tends to the direction from which it entered, but may become a reversal
- even in a cloud, the span lines or edges of the cloud may provide support and resistance
- thick clouds occur in an accelerating trend
- thin clouds may indicate a reversal coming
- the lagging line crossing the cloud is a primary signal of a trend change
- the price line crossing the cloud is an earlier but not so reliable signal of a trend change
- either line may tend to track along the cloud edges
- the cloud changing color (span lines crossing) is a clear indication of a trend change, but needs confirmation
- the turning line crossing the standard line can be used as a signal in a similar way to the double crossover moving average method
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