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In looking at the delayed line, first note that, because it is delayed, it ends before the current close. Thus, you go back to where it ends and check whether it is above or below the close of that date. For example, the gold market has strengthened when the delayed line is above the closing prices at that past date; otherwise, the market would have declined. This is simply a comparison of the current prices with the prices as of a month ago, and the quick comparison is the only use of the delayed line.

The ichimoku technique’s ingenuity lies in the preceding lines to define support and resistance levels. The standard and turning lines indicate the consensus of the market participants over the specified time horizons, so a rising trend will be revealed by successively higher lows, while a declining trend will be given by successively lower highs.

An old Japanese saying states, “Ask the market about the market.” With that in mind, the current market price of gold should contain all the information that is known to investors. Therefore, the average value of the standard and turning lines must be the best predictor of future price. These become ichimoku’s first preceding span.

A trend defined by computing the midpoints of highs and lows in the past 52 days (that is, two months) should contain such factors as supply and demand along with expectations in the past. This trend is then time-shifted one month down the road to represent the second preceding span.

The region between the two preceding spans is referred to as kumo, meaning “cloud,” and defines support or resistance. A breakout above the kumo indicates the breakout above the resistance level. Again, this concept is similar to moving averages. It is possible that market expectations on gold prices quickly change and the prices return to the cloud (support/ resistance), defining the support/resistance level after a price breakout has been observed. However, the risk of such traps or false breakouts should be much less for the ichimoku chart than the comparable moving average chart, as the ichimoku’s two preceding spans are deliberately shifted (exactly one month in Hosoda’s formulas) to the future. When gold prices are loitering in or near the cloud, it would be better to wait for the market price to go above or below the cloud. If the prices are above the cloud, the sun is shining and it would be a time to buy. If the prices are below the cloud, it’s raining and it would be a time to sell.

When all of the delayed lines, the standard/turning lines, and the cloud indicate the same signal to buy or sell, the chart should be showing a trend. But in sideways markets, an ichimoku trend-following system can be risky, and oscillators should be monitored.

REMARKS

An ichimoku chart is a trend-following system with an indicator similar to moving averages. What makes it unique, however, is found in the strategy to time-shift the trendlines to the past for the delayed line and to the future for the preceding lines. By doing so, we can look at market timing, resistance/ support, and possibly false breakout, all in one chart, in one panoramic view (ichimoku).

The time spans of nine, 26, and 52 may be changed for the current markets, as securities are not currently traded on Saturday. Ichimoku charts can easily be constructed using spreadsheet software such as Excel or Lotus. Optimized values for the time spans can be found without years of calculations by using spreadsheets.

There are some difficulties applying them today, since markets such as foreign currencies trade 24 hours a day around the globe; we must devise a way to define opening and closing prices. In addition, derivatives are relatively short-lived. However, analysts familiar with these problems will be able to apply ichimoku charts to virtually any market.

An ichimoku chart is a trend-following system with an indicator similar to moving averages. What makes it unique, however, is found in the strategy to time-shift the trendlines to the past for the delayed line and to the future for the preceding lines.