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Ichimoku Reconstructed...!
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Ichimoku Reconstructed...!

  #1 (permalink)
Trading for Fun
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Ichimoku Reconstructed...!

This is going to be my first post so i decided to start with a system that i am conversant with.

For a start, ichimoku is multi time frame "pure price action" system constructed with 5 lines, each giving a clue on the present price action with relation to its historical price movement. The combination of these 5 lines together give the total picture.

I have seen some good post on ichi but somehow the core concept of the system is lost in looking for signals on when to buy / sell. Objective look at a very subjective market needs clear understanding on how the system is constructed and how it derives its signals.

I personally like to add 2 oscillator, stochastic for identifying the cycle and RSI for divergence / continuation pattern.
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Last edited by linkon7; August 24th, 2011 at 01:47 PM. Reason: had to add an image
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Quick Summary
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PS : this forum has a rule that i cannot post screen shots till i have 5 post, so i guess images have to wait for a latter time...

Click on the word screenshots to learn how to do them. The rule is you cannot post LINKS until 5 posts. If you attach the images as opposed to using an external image source, you can do it from post 1.

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  #4 (permalink)
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ChiKou Span :

ChiKou Span :
The most important and often least understood indicator is the CS (ChiKou Span) which is a simple line chart shifted n-number of bars to the Left.

Sometimes, a simple line chart can provide us a lot of information about market structure and well known patterns that is not visible on candle sticks.

The main purpose of this indicator is to identify support and resistance and to draw trend lines.

When we look at historical price movement to make an assumption on future price action, we have to define our assumptions. That way when we know market has proven our assumptions wrong, we can safely and gracefully take our exit. I'll cover the assumption chapter later after introducing the 5 lines.

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Last edited by linkon7; August 24th, 2011 at 01:48 PM.
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Welcome to futures.io (formerly BMT), Linkon! This is IchibomB (CamelToeJoe).

It's great to have you on board here, Linkon.

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  #6 (permalink)
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TENKAN SEN & KIJUN SEN

TENKAN SEN ("turning line")

The tenkan sen is calculated in the following manner:

(HIGHEST HIGH + LOWEST LOW)/2 for the past 9 periods

KIJUN SEN ("standard line")

The kijun sen is calculated in the following manner:

(HIGHEST HIGH + LOWEST LOW)/2 for the past 26 periods

After much research and backtesting, Goichi Hosoda finally determined that the settings of 9, 26 and 52 were the ideal settings for obtaining optimum results with Ichimoku. He derived the number 26 from what was then the standard Japanese business month (which included Saturdays). The number 9 represents a week and a half and the number 52 represents two months.

But, personally i prefer using the 5,20,40 settings as we have 5 trading days in a week, 20 trading days in a month and bi-monthly has 40 trading days.

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Welcome to futures.io (formerly BMT), Linkon! This is IchibomB (CamelToeJoe).

It's great to have you on board here, Linkon.

Thanks..! Nice to see a familiar face here...!

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  #8 (permalink)
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TS and KS re - constructed...!

1. chart under analysis. A 2 min chart of nifty Index.

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2. plot the highest high (green) and the lowest low (red) of the last 15 bars and the mid point of this 2 line is plotted as yellow line. This yellow line is the center of the 30 min tf bar. Every time a new 2 min bar is formed, a new high / low data is included. If this new bar makes a new high than its last 15 bars, then the yellow line shifts higher. If it forms a new low compared to its last 15 bars, then the yellow line shifts lower.

Every time, a new bar is formed, the last bar of the series of 15 bars is discarded. If the last bar was the lowest low among the 15 bars, then the yellow bar shifts higher as the lowest low of the 15 bars series got a higher low. This is irrespective of the fact that the new bar that is added need not be a new high / low bar.

Overall progress of the midpoint of the 30 min bar can be observed on 2 min time frame interval.
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3. we now plot the 60 bar highest high (green) and lowest low (red) and plot the midpoint as white line. This white line is the midpoint of 2 hour time frame bar and shift of this while line will only occur when
a new high is made which is higher than the last 60 bars or
a new low is made which is lower than the the last 60 bars or
oldest bar that is being discarded was the lowest low of the last 60 bars or
oldest bar that is being discarded was the highest high of the last 60 bars

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4. Now for fun sake, I am going to plot the yellow (TS) and white line (KS) as a cloud to highlight the visual effect of TS above the KS scenario.

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Price is nothing but a transaction between a buyer and a seller who have a opposite view on current value of scrip that is being traded and have agreed upon a price. A series of such transaction gives rise to price movement. Price moves up till the last buyer has filled his inventory and there are no more buyers willing to transact at that price. This gives us our swing high.

Sellers then auction the price down to invite buyers and price moves down till the last seller has sold his inventory and there are no more sellers willing to sell at that price. This gives us our swing low.

When the buyers are more desperate to act, then we have a scenario where we have a higher swing high and a higher swing low. A series of such higher high / higher low on price gives us our up trend.

On a strong up trend, price seldom retrace 50% from the top before buyers are desperate to buy the dips.
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On the 3 min chart of nifty, the high of the last 20 bars is plotted with a green line. The low of the same 20 bars is plotted in red. The 50% retracement from the top, is basically the mid point of this 2 lines, which happens to be our KS.

A rising KS signifies a rising bullish sentiment on the a set of 20 bars of 3 min each, meaning we monitor the progress of 60 min time frame using a 3 min chart.

Now same chart, we plot the midpoint of the last 5 bar's high and low, we now have our TS. TS represents the change in sentiment of 15 min tf on my 3 min chart.

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All i need now is an oscillator, like stochastic to tell me which dip i should buy.

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Those ichimoku bands are pretty sweet.

I just wrote some for the thinkorswim platform.

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Last edited by Massive l; August 24th, 2011 at 03:22 PM.
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