Precourse
Module 1 – How to Track Price Action on Ichimoku Charts
Module 2 – Finding Support and Resistance
Module 3 – Reading the Charts
Postcourse

Steps to Reading Ichimoku Charts

If you’ve watched any of my videos or read my Market Weather Reports you will notice this pattern. 

  1. First, observe the weekly and see if the current price is above, below, or inside the weekly Cloud.
         You can mark on the weekly chart support/resistance areas based on Cloud plateaus lines.
  2. Then we look at the daily and observe if the current market action is above, below, or inside the Cloud.
  3. We then start at the beginning of the chart and make note of price action to the different elements of the Ichimoku system. This is where you use the Questions for Charts.
         Price Action to the Cloud Lines, Kijun-sen, and Tenkan-sen
              Historical Rides, Touches, Crosses
              Questions for the lines themselves
              Observations of Characteristics of the Kumo, Kijun-sen, and Tenkan-sen
  4. Then we describe the last few days of market action making note of the most important observations.
         Most Recent Candlesticks
         Current Price Action
         Price Action to the Cloud Lines, Kijun-sen, and Tenkan-sen
              Rides
              Touches
              Crosses
  5. We then report on the Chikou Span.
         Price Action to Chikou Span
         Chikou Span Questions
  6. Finally, we give the forecast by looking at the future Cloud.
         Future Kumo

Knowing the exact steps for looking at indicator lines gives you the confidence to understand the information the lines are trying to tell you.

  1. Weekly  Price to Cloud
  2. Daily Price to Cloud
  3. Chart from Left to Right
  4. Current Price Action
  5. Chikou Span
  6. Future Kumo

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On this June 24, 2013, chart of The Boeing Company, we see that the current price action is above both the weekly and daily cloud.

1st red arrow: There was a consolidation area with support from below from the 200 sma and the Cloud.

2nd red arrow: Price starts to rise and the beginning of a long Tenkan-sen Kijun-sen channel. Price stays mostly riding above the Tenkan-sen.

The most current price action is almost like the three black crows candlestick pattern with a hammer thrown into the mix. Price action has crossed below the Tenkan-sen and Kijun-sen. And the Tenkan-sen is crossing below the Kijun-sen.

The Chikou Span is just now touching old price action.

The future Kumo is still green and growing.

On this June 24, 2013, chart of AT&T Inc., we find the current price action inside a green Cloud on the weekly and below the Cloud on the daily. 

At the beginning of the daily chart, price action is below the Cloud then enters then falls out before having a nice steady climb up and out at the 1st red arrow. At this point price action rides the 200 sma while bouncing above and below the Tenkan-sen. It finally breaks free with four green candles. 

It stays above the Kijun-sen until a nasty gap down into a hammer (2nd arrow) opening and closing below both the Tenkan-sen and Kijun-sen. It’s never able to get back above the Kijun-sen and falls into the Cloud.

At the 3rd red arrow, it makes one last attempt to get inside the Cloud opening right at the Tenkan-sen. The bears have the control that day as they drive the price down for a large red candle that gaps down with another hammer the next day. 

Current price action has us under the Cloud, Tenkan-sen, Kijun-sen with the Tenkan-sen below the Kijun-sen. 

The lagging Chikou Span is now free and clear to the downside.

The future Kumo has turned red with the thin spot just above and out of reach. 

On this June 24, 2013, chart of Bank of America Corporation, the price is above the weekly Cloud and just falling out of the Daily Cloud. 

The daily shows a nice long green Cloud with only a few touches of red. Price starts by being above the Cloud and maintains that until the 1st red arrow. Right before the arrow, price rides the Tenkan-sen nicely. After it falls below the Tenkan-sen it loses traction and falls into the Cloud. There is a nice small green Doji four days after the arrow that seems to stop the down-trend. 

Price is able to stay above the cloud until a short-lived break through at a thin spot at the 2nd red arrow. Six green candles later the momentum is to the upside until it stalls and falls through the Tenkan-sen twice the second time touching the Kijun-sen. 

At the 3rd red arrow, the Tenkan-sen crosses under the Kijun-sen and price rides under the Kijun-sen. 

The current price action didn’t even want to be inside the Cloud and opens on the lower Cloudline, the Senkou Span B. It’s now below the wind lines and the Cloud with only the 200 sma below. The weekly 200 sma is also the next support level. 

The Chikou Span is now below old market action, the wind lines, and only has a very thin Cloud as support.

The future Kumo is getting thinner and has a long flat Senkou Span B that might serve as future resistance.  

Here are the steps again:

  1. Weekly Cloud
  2. Daily Cloud
  3. Chart Action to Ichimoku
  4. Current Price Action
  5. Chikou Span
  6. Future Kumo

On this June 24, 2013, chart of Newmont Corporation both the weekly and daily are below their Clouds. 

The daily chart starts with a green Cloud but quickly changes to red all the way down. The price stays under the Cloud, sometimes touching but never penetrating. The Cloud itself falls below the 200-period sma. 

Each red arrow is at the end of a flat Kijun-sen which means price action had stalled and consolidated for at least 26 trading days. 

Currently, the price action is falling again with a Doji hammer sandwiched between two red candles with no upper wick. No upper wick means that the open was the high of the day and it traded lower the rest of the day. The Tenkan-sen just crossed over the Kijun-sen as another bearish sign. 

The Chikou Span is free and clear on both the daily and the weekly.

The future Kumo is red and angled downward, on both the daily and the weekly. 

On this June 24, 2013, chart of Amazon.com, Inc., we are above the Cloud on both the daily and weekly. 

The Cloud seems to be riding the 200 sma. 

We have a lot of flat Kijun-sens as market action stays in a narrow trading range. The Tenkan-sen crosses the Kijun-sen multiple times. 

The Cloud seems to provide support at the 1st red arrow. After seven small candle days, the support doesn’t hold and we fall through the Cloud at the 2nd arrow. Price struggles to get above the Cloud again trying four times before gapping up and above a thin Cloud at the 3rd arrow. The Cloud is thin because of the trading range narrowing over the last 52 or more trading days. 

Currently, price has fallen below the Tenkan-sen and the Kijun-sen and is above a Kumo Twist, thin Cloud, and 200 sma. 

The Chikou Span has fallen into the Cloud and is mired in old price action. It still has the wind lines and bottom of the Cloud as support from below. 

The future Cloud is very thin for the next 15 trading days offering very little support if price tries to challenge.

After following these examples, you should now be able to glance at a chart and observe the “Reading the Charts” steps. 

  1. Weekly Cloud
  2. Daily Cloud
  3. Chart Price Action
  4. Current Price Action to Ichimoku
  5. Chikou Span
  6. Future Kumo
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Side Quest: Ichimoku Weather Blog
For more examples see my blog.
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The charting platform used for this analysis is provided by Charles Schwab and is called TOS or ThinkorSwim.