Ichimoku is one of the most profitable indicator since it provides you with the current trend, time entries, support/resistance, and momentum at the same time. Here are the different components:
- Leading span 1 (senkou span A): Average of tenkan/kijun lines from prior 26 days projected 26 days ahead
- Leading span 2 (senkou span B): Daily average from prior 52 days projected 26 days ahead
- Conversion (tenkan) line: (Highest high + lowest low)/2 from prior 9 days
- Base (kijun) line: (Highest high + lowest low)/2 from prior 26 days
- Lagging span (chikou): Today’s close projected 26 days backward
The main component of this indicator are the two lines (leading span 1 & 2) forming a cloud. When the price is above the cloud, the trend is bullish. Conversely, when the price is below the cloud, the trend is bearish. Additionally, the cloud will give supports and resistances.
Then there are 2 moving averages, one fast called the Conversion line (9 periods) and a slow one called the Base line (26 periods). A Conversion line crossing above the Base line means a buy signal, while the reverse means a sell signal.
Last but not least, the Lagging line will provide you with confirmation. Let’s say the price is above the cloud, the Conversion line crosses above the Base line. But before you click on the buy button, you want to make sure that it’s not a fake out, that’s when you will wait for the Lagging line to cross above the cloud.
Finally, Ichimoku is best used with clear trends, but you should avoid it when the market is trading sideways.