The Ichimoku indicator is intended for simultaneous determination of market trend, support and resistance levels, and the generation of buy and sell signals on weekly or daily charts. In this way, it unifies other indicators and different approaches for price forecasting.

Ichimoku is indicated by using three different time periods to formulate five lines: Standard, Turning, Delayed, First Preceding, and Second Preceding. The area between the First Preceding Line and Second Preceding Line is termed the "Cloud".

Interpretation

There are several ways to interpret the Ichimoku indicator:

1. If price is in the Cloud the market is considered to be in a non-trending state, with Cloud edges indicating support and resistance lines. If price is above the Cloud the upper edge serves as the first support level and the lower edge as the second support level. If the price is below the cloud the lower edge serves as the first resistance level and the upper edge as the second resistance level.

2. Price crossing above the Delayed Line is a bullish signal, signifying a buying point. Price crossing below the Delayed Line is a bearish signal, signifying a selling point.

3. The Standard Line can be used as a market movement indicator. If price is above this line then prices will, most likely, keep rising. When price crosses this line a change in the trend is indicated.

4. The Turning Line can be used as a market trending indicator. A steady rise or fall of this line indicates that a trend exists. The Turning Line crossing below the Standard Line is a bullish signal, signifying a buying point. The Turning Line crossing above the Standard Line is a bearish signal, signifying a selling point.

Calculation

Ichimoku indicator lines are calculated as follows:

1. The Turning Line shows the mean value of the price over the first time period (9 days). At this point and below the mean value is the half-sum of the highest high and lowest low over the time period.

2. The Standard Line shows the mean price value over the second time period (26 days).

3. The First Preceding Line shows the middle value between the previous two lines, shifted ahead on the value of the second time period.

4. The Second Preceding Line shows the mean price value over the third time period (52 days), shifted ahead on the value of the second time period.

5. The Delayed Line shows the current close price, shifted backward on the value of the second time period.