ProTrader
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he Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a versatile indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals. Ichimoku Kinko Hyo translates into "one look equilibrium chart". With one look, chartists can identify the trend and look for potential signals within that trend.
The chart below shows the Dow Industrials with the Ichimoku Cloud plots. The Conversion Line (blue) is the fastest and most sensitive line. Notice that it follows price action the closest. The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. The 9-day is faster and follows the price plot closer. The 26-day is slower and lags behind the 9-day. Incidentally, notice that 9 and 26 are the same periods used to calculate MACD.
The chart below shows the Dow Industrials with the Ichimoku Cloud plots. The Conversion Line (blue) is the fastest and most sensitive line. Notice that it follows price action the closest. The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. The 9-day is faster and follows the price plot closer. The 26-day is slower and lags behind the 9-day. Incidentally, notice that 9 and 26 are the same periods used to calculate MACD.