Japanese Cloud Charts Ichimoku Kinko Hyo. Véronique Lashinski, CMT Newedge USA, LLC

Transcription

1 Japanese Cloud Charts Ichimoku Kinko Hyo Véronique Lashinski, CMT Newedge USA, LLC

2 Table of Contents 1. Construction of cloud charts 2. Cloud as support and resistance 3. A look back in time: Weekly, monthly cloud charts 4. Comparison with Western techniques: A few examples 5. Sideways markets 6. Building indexes from the cloud lines 2

3 1. Construction of cloud charts

4 Preliminary remarks Method is based on a 6-day working week For commodity futures, consider using a 5-day working week. We will give both the default settings and the periods for the change to 5 days in the definitions that follow. As cloud charts use the extremes, charts can be different when using all-sessions 24 hour markets, or just pit-hours A short-lived spike in a market will impact the cloud chart for several weeks 4

5 Kijun Sen and Tenkan Sen Definitions and defaults Tenkan Sen : (Highest high + lowest low) / 2, for the past 9 days. (7 days for a 5-day working week) Kijun Sen : (Highest high + lowest low) / 2, for the past 26 days. (22 days for a 5-day working week) This is the middle of the range, over respectively 1 ½ weeks and one month Crossovers between the Tenkan Sen and the Kijun Sen can be used for buy and sell signals, in a similar way as moving averages in Western techniques 5

6 Tenkan Sen and Kijun Sen: On the chart Kijun Sen Tenkan Sen Source: Bloomberg 6

7 Tenkan Sen and Kijun Sen: On the chart Kijun Sen Tenkan Sen Source: Bloomberg 7

8 Tenkan Sen and Kijun Sen: On the chart Kijun Sen Tenkan Sen Source: Bloomberg 8

9 Lagging Span (Chikou Span) Today s close, plotted 26 days behind (22 days for a 5-day working week) Compares current prices to levels a month ago Price levels 26 (22) days ago and the cloud are current resistance / support The lagging span can be used as confirmation of signals derived from the cloud and prices (more on this later) 9

10 Lagging span: On the chart Lagging span Source: Bloomberg 10

11 Lagging span: On the chart Lagging span Source: Bloomberg 11

12 Lagging span: On the chart Lagging span Source: Bloomberg 12

13 Cloud Lines Senkou Span A : (Tenkan Sen + Kijun Sen) / 2, plotted 26 days ahead. (22 days for a 5-day working week). - Middle of the range of the past 26 days, but the last 9 days are counted with double weight. Senkou Span B : (Highest high + lowest low) / 2, for the past 52 days, plotted 26 days ahead. (44 days, plotted 22 days ahead for a 5-day working week). - Again, note the importance of the middle of the range. The area between Senkou Span A and Senkou Span B is the cloud, representing key support (if the cloud is below prices) or resistance (if the cloud is above prices). 13

14 Cloud: On the chart Cloud Cloud Source: Bloomberg 14

15 Cloud: On the chart Cloud Source: Bloomberg 15

16 2. Clouds as support and resistance

17 Cloud is future support or resistance Chart made using 5 day week 17

18 A widening cloud is strengthening support or resistance Cloud is rising, and widening in the near future: support is increasing Cloud declining Cloud rising AND widening The portion of cloud ahead of the Lagging Span line is declining: increasingly difficult for the Lagging Span to return below the cloud in the near future. Chart made using 5 day week 18

19 Clouds feature points of vulnerability Chart made using 5 day week 19

20 Cloud as support or resistance Source: Bloomberg 20

21 Cloud as support or resistance 3/3/2010 Source: Bloomberg Japanese Clouds 21

22 Break of cloud support (Natural Gas, 2007) Failure to return above Failure to cloud return above cloud 3/3/2010 Source: Bloomberg Japanese Clouds 22

23 The cloud had provided support for several months (Natural Gas, 2007) 3/3/2010 Source: Bloomberg Japanese Clouds 23

24 3. A look back in time: Weekly, monthly cloud charts

25 Last quarter of 2005, Monthly continuation End of 2006 / early 2007 Chart made using 5 day week 25

26 Daily chart, at the end of 2005 Bearish, but the monthly continuation chart mitigated the picture and did NOT confirm weakness Chart made using 5 day week 26

27 Last quarter of 2006 and early 2007, Monthly continuation End of 2006 / early 2007 Chart made using 5 day week 27

28 Daily chart, End of 2006-early 2007 In December 2006, prices declined to the cloud, but did not go below it Chart made using 5 day week 28

29 4. Comparison with Western techniques: A few examples Clouds and Fibonacci retracements Example of a channel break out, and break of 50-day MA Example of a bear flag

30 Candlesticks and Fibonacci retracements Candlesticks are a key component of the method - For Example: Bullish candlestick / pattern on support Strongly bearish candlestick / pattern going through support Fibonacci retracements and clouds - The 50% retracement is the middle of the move being corrected, while the cloud is based on data using the mid-point of the ranges, projected forward. - In corrections, the cloud is typically close to Fibonacci retracements. 30

31 Cloud and Fibonacci retracements Source: Bloomberg 31

32 Cloud and Fibonacci retracements Source: Bloomberg 32

33 Cloud and Fibonacci retracements Source: Bloomberg 33

34 Example: December CBOT Soybean Oil, 2007 Comparison of channel and 50-day MA support, with a cloud chart 34

35 Channel and 50-day MA had stopped all declines since Dec 06 35

36 The market remained above cloud for several months then it broke below cloud, but the lagging span did not spend much time under the cloud 36

37 Case study: Bear flag CBOT December 2007 Soybean Meal futures, in July

38 Bear flag activated with break of 50-day MA support Chart made using 5 day week 38

39 Chart made using 5 day week 39

40 Weekly continuation Chart made using 5 day week 40

41 Monthly chart: Testing cloud Chart made using 5 day week 41

42 5. Cloud charts: A cluttered picture in sideways markets!

43 NYBOT cocoa, May 2006 Source: Bloomberg 43

44 NYMEX Natural Gas, May 2007 Source: Bloomberg 44

45 6. Building indexes from the cloud lines: A western twist on an Eastern tool

46 Cloudwidth index: to visualize clouds on an oscillator Senkou Span A Senkou Span B 46

47 Applying oscillators on Cloudwidth 47

48 48

49 Another way to visualize Kijun Sen and Tenkan Sen Tenkan Sen Kijun Sen, and 3-day MA 49

50 Contact Information Véronique Lashinski, CMT Vice-President & Senior Research Analyst Newedge USA, LLC 550 West Jackson #241D Chicago, IL Phone (312)

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