This is also very similar to moving averages: when the shorter moving average crosses above the longer moving average, it means that momentum is up and rising.īase and Conversion lines act as support and resistance during trends Only take buy trades when price is above the two lines and sell trades when price is below the two lines A cross of the two lines confirms momentum When the shorter line moves above the longer-term line, it means rising bullish momentum (and vice versa) When price moves above the two lines, it confirms the momentum The Ichimoku Indicator: The Cloud The Ichimoku Cloud is made up of a lower and an upper boundary and space in between the two lines is then often shaded either green or red. When price is trading above the two lines and when the Conversion line is above the Base line, it signals bullish momentum. Tenkan Sen Conversion Line: The middle of the 9-period high and low Kijun Sen Base Line: The middle of the 26-period high and low Conversion and Base lines signals and meaning The Conversion and Base lines have two purposes: first, they act as support and resistance during trends, just like moving averages. In the screenshot below, the green and the red line are the Ichimoku Base and Conversion lines. This means that they look back 9 and 26 periods (candles), take the highest and the lowest price levels during that period and then plot the line in the middle of that range. We will now take a look at each component individually and then put it all together to help you find better trade signals.Ĭonversion and Base Lines As I said earlier, that the Conversion and Base lines look like moving averages on your charts, but they do something different. The lagging span of the Ichimoku is left out by choice since it does not add much value. Please note that I am focusing on the momentum and trend-following aspects of the Ichimoku indicator for this article. First step: taking the Ichimoku indicator apart The Ichimoku indicator is made up of 2 different components: 1) The Conversion and Base lines: Those look like moving averages on your charts, but they are not as we will see 2) The Ichimoku Cloud: The Cloud is the most popular aspect of the indicator because it stands out the most.
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