Japanese Cloud Charts Ichimoku Kinko Hyo - CMT … Japanese Clouds 4 Preliminary remarks •Method is based on a 6-day working week •For commodity futures, consider using a 5-day

Japanese Cloud Charts

Ichimoku Kinko HyoVéronique Lashinski, CMT

Newedge USA, LLC

23/3/2010 Japanese Clouds

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

1. Construction of cloud

charts


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


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


Tenkan Sen and Kijun Sen: On the chart

Kijun Sen

Tenkan Sen

Source: Bloomberg



Kijun Sen

Tenkan Sen

Source: Bloomberg



Kijun Sen

Tenkan Sen

Source: Bloomberg


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)


Lagging span: On the chart

Lagging span

Source: Bloomberg



Lagging span

Source: Bloomberg



Lagging span

Source: Bloomberg


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).


Cloud: On the chart

Cloud

Cloud

Source: Bloomberg


Cloud: On the chart

Source: Bloomberg

Cloud

2. Clouds as support

and resistance


Cloud is future support or resistance

Chart made using 5 day week


A widening cloud is strengthening

support or resistance

• Cloud is rising, and

widening in the near

future: support is

increasing

• 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.

Cloud

declining

Cloud rising

AND

widening



Clouds feature points of vulnerability



Cloud as support or resistance

Source: Bloomberg


Cloud as support or resistance

Source: Bloomberg


Break of cloud support (Natural Gas, 2007)

Failure to

return above

cloud

Failure to

return above

cloud

Source: Bloomberg


The cloud had provided support for

several months (Natural Gas, 2007)

Source: Bloomberg

3. A look back in time:

Weekly, monthly

cloud charts


End of 2006

/ early 2007

Last quarter of 2005, Monthly

continuation



Daily chart, at the end of 2005

Bearish, but the monthly

continuation chart

mitigated the picture and

did NOT confirm weakness



End of 2006

/ early 2007

Last quarter of 2006 and early 2007,

Monthly continuation



Daily chart, End of 2006-early 2007

In December 2006, prices

declined to the cloud, but

did not go below it


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


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.


Cloud and Fibonacci retracements

Source: Bloomberg



Source: Bloomberg



Source: Bloomberg


Example: December CBOT Soybean

Oil, 2007

Comparison of channel and 50-day MA

support, with a cloud chart


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


…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


Case study: Bear flag

CBOT December 2007 Soybean Meal

futures, in July 2007


Bear flag activated with break of

50-day MA support





Weekly continuation



Monthly chart: Testing cloud


5. Cloud charts:

A cluttered picture in

sideways markets!


NYBOT cocoa, May 2006

Source: Bloomberg


NYMEX Natural Gas, May 2007

Source: Bloomberg

6. Building indexes from

the cloud lines: A

western twist on an

Eastern tool


Cloudwidth index: to visualize clouds

on an oscillator

Senkou Span A – Senkou Span B


Applying oscillators on Cloudwidth



Another way to visualize

Kijun Sen and Tenkan Sen

Tenkan Sen – Kijun Sen, and 3-day MA


Contact Information

Véronique Lashinski, CMT

Vice-President & Senior Research Analyst

Newedge USA, LLC

550 West Jackson #241D

Chicago, IL 60661

Phone (312) 756 1562

[email protected]


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Documents

Japanese Cloud Charts Ichimoku Kinko Hyo - CMT … Japanese Clouds 4 Preliminary remarks •Method is based on a 6-day working week •For commodity futures, consider using a 5-day