Japanese Cloud Charts

Ichimoku Kinko Hyo

Véronique Lashinski, CMT
Newedge USA, LLC
 Table of Contents
1. Construction of cloud charts
2. Cloud as support and resistance
3. A look back in time: Weekly, monthly
cloud charts
4. Comparison with Western techniques: A
few examples
5. Sideways markets
6. Building indexes from the cloud lines

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1. Construction of cloud
charts
Preliminary remarks
• Method is based on a 6-day working week

• For commodity futures, consider using a 5-day working week. We

will give both the default settings and the periods for the change
to 5 days in the definitions that follow.

• As cloud charts use the extremes, charts can be different when

using all-sessions 24 hour markets, or just pit-hours

• A short-lived spike in a market will impact the cloud chart for

several weeks

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Kijun Sen and Tenkan Sen
Definitions and defaults
• Tenkan Sen : (Highest high + lowest low) / 2, for the past 9 days.

(7 days for a 5-day working week)

• Kijun Sen : (Highest high + lowest low) / 2, for the past 26 days.

(22 days for a 5-day working week)

• This is the middle of the range, over respectively 1 ½ weeks and one
month

• Crossovers between the Tenkan Sen and the Kijun Sen can be used for
buy and sell signals, in a similar way as moving averages in Western
techniques

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Tenkan Sen and Kijun Sen: On the chart

Kijun Sen

Tenkan Sen

Source: Bloomberg

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Tenkan Sen and Kijun Sen: On the chart

Kijun Sen

Tenkan Sen

Source: Bloomberg
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Tenkan Sen and Kijun Sen: On the chart

Kijun Sen

Tenkan Sen

Source: Bloomberg
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 Lagging Span (Chikou Span)
• Today’s close, plotted 26 days behind (22 days for a 5-day
working week)

• Compares current prices to levels a month ago

• Price levels 26 (22) days ago and the cloud are current
resistance / support

• The lagging span can be used as confirmation of signals derived

from the cloud and prices (more on this later)

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Lagging span: On the chart

Lagging span

Source: Bloomberg
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Lagging span: On the chart

Lagging span

Source: Bloomberg

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Lagging span: On the chart

Lagging span

Source: Bloomberg

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Cloud Lines
• Senkou Span A : (Tenkan Sen + Kijun Sen) / 2, plotted 26 days
ahead. (22 days for a 5-day working week).
- Middle of the range of the past 26 days, but the last 9 days are counted with double weight.

• Senkou Span B : (Highest high + lowest low) / 2, for the past 52

days, plotted 26 days ahead. (44 days, plotted 22 days ahead for
a 5-day working week).
- Again, note the importance of the middle of the range.

• The area between Senkou Span A and Senkou Span B is “the

cloud”, representing key support (if the cloud is below prices) or
resistance (if the cloud is above prices).

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Cloud: On the chart

Cloud

Cloud

Source: Bloomberg

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Cloud: On the chart

Cloud

Source: Bloomberg
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2. Clouds as support
and resistance
Cloud is future support or resistance

Chart made using 5 day week

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A widening cloud is strengthening
support or resistance
• Cloud is rising, and
widening in the near
future: support is
increasing

• The portion of cloud

ahead of the Lagging
Cloud rising Span line is declining:
AND increasingly difficult for
Cloud widening the Lagging Span to
declining return below the cloud
in the near future.

Chart made using 5 day week

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Clouds feature points of vulnerability

Chart made using 5 day week

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 Cloud as support or resistance

Source: Bloomberg
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 Cloud as support or resistance

3/3/2010 Source: Bloomberg Japanese Clouds 21

 Break of cloud support (Natural Gas, 2007)
Failure to
return
Failure above
to
cloud
return above
cloud

3/3/2010 Source: Bloomberg Japanese Clouds 22

The cloud had provided support for
several months (Natural Gas, 2007)

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3. A look back in time:
Weekly, monthly
cloud charts
Last quarter of 2005, Monthly
continuation

End of 2006
/ early 2007

Chart made using 5 day week

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Daily chart, at the end of 2005
Bearish, but the monthly
continuation chart
mitigated the picture and
did NOT confirm weakness

Chart made using 5 day week

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Last quarter of 2006 and early 2007,
Monthly continuation

End of 2006
/ early 2007

Chart made using 5 day week

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Daily chart, End of 2006-early 2007

In December 2006, prices

declined to the cloud, but
did not go below it

Chart made using 5 day week

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4. Comparison with
Western techniques:
A few examples
• Clouds and Fibonacci retracements

• Example of a channel break out, and break of 50-day MA

• Example of a bear flag

Candlesticks and Fibonacci retracements
• Candlesticks are a key component of the method
- For Example:
• Bullish candlestick / pattern on support
• Strongly bearish candlestick / pattern going through support

• Fibonacci retracements and clouds

- The 50% retracement is the middle of the move being
corrected, while the cloud is based on data using the mid-point
of the ranges, projected forward.
- In corrections, the cloud is typically close to Fibonacci
retracements.

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Cloud and Fibonacci retracements

Source: Bloomberg

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Cloud and Fibonacci retracements

Source: Bloomberg

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Cloud and Fibonacci retracements

Source: Bloomberg

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 Example: December CBOT Soybean
Oil, 2007

Comparison of channel and 50-day MA

support, with a cloud chart

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 Channel and 50-day MA had stopped all declines since Dec 06
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 …The market remained
above cloud for several
months…

…then it broke below cloud, but

the lagging span did not spend
much time under the cloud

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 Case study: Bear flag

CBOT December 2007 Soybean Meal

futures, in July 2007

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Bear flag activated with break of
50-day MA support

Chart made using 5 day week

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 Chart made using 5 day week

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 Weekly continuation

Chart made using 5 day week

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 Monthly chart: Testing cloud

Chart made using 5 day week

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5. Cloud charts:
A cluttered picture in
sideways markets!
NYBOT cocoa, May 2006

Source: Bloomberg

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NYMEX Natural Gas, May 2007

Source: Bloomberg

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6. Building indexes from
the cloud lines: A
western twist on an
Eastern tool
 Cloudwidth index: to visualize clouds
on an oscillator

Senkou Span A – Senkou Span B

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 Applying oscillators on Cloudwidth

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3/3/2010 Japanese Clouds 48
Another way to visualize
Kijun Sen and Tenkan Sen

Tenkan Sen – Kijun Sen, and 3-day MA

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Contact Information
Véronique Lashinski, CMT
Vice-President & Senior Research Analyst
Newedge USA, LLC
550 West Jackson #241D
Chicago, IL 60661
Phone (312) 756 1562
veronique.lashinski@newedgegroup.com

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