Indicator Alternative Ichimoku – Setup, Examples of Usage [ ru ]
Why did Alternative Ichimoku appear? Because there is no limit of perfection. Of course, at first the author thought that he developed an indicator even better than the famous Ichimoku Kinko Hyo. Then, selecting indicators' parameters and comparing them together it became clear that the popularity of Ichimoku Kinko Hyo is deserved and this indicator works much better if an analyst or trader clearly understands how to attach an indicator to a chart, what parameters to choose.
The author had to occupy himself with graphical indicators mathematics. And the thorough analysis of construction mathematics of both indicators showed that both have their own advantages. And their disadvantages are determined first of all by the incomprehension of the way these indicators should be used or attached to a necessary chart. This article will help you understand this and give you the main methods of a correct indicator application on a chart.
Graphical analysis is widely used by traders. After the appearance of user-friendly client terminals, allowing to develop one's own indicator, the number of graphical tools increased greatly. The practice of using graphical indicators in technical analysis reflects the convenience of usage and graphical visualization. And some indicators of graphical analysis give a rather true forecast.
However, the rate of true forecasting for currencies is by far lower, than that
for stock. With stock everything is more or less clear: uptrend or downtrend. Intermediary
temporary intervals are very rare. In forecasting currencies curves such situations
(no trend) appear constantly. What decision should be made in such cases? The indicator
Alternative Ichimoku will help in such difficult cases to estimate the situation
and make a right decision.
Indicator Ichimoku Kinko Hyo
The technical indicator Ichimoku Kinko Hyo is used for determining support and resistance
levels as well as the time for entering the market when the lines are broken through.
Mathematics of the Indicator Ichimoku Kinko Hyo
The indicator uses four time intervals, which are determined by three parameters of the indicator.
The distance between Senkou lines is hatched by another color and is called "Cloud". Chinkou Span shows the closing price of the current candlestick, shifted to the past by the value of the second time interval.
Rules of Setting the Parameters of the Indicator Ichimoku Kinko Hyo
This indicator has three parameters:
In such positions consequence it is natural to start setting up the indicator from the first parameter, analyzing the position of the line Tenkan-sen, disregarding all other lines. What should we get when setting up the parameter?
First, what we should see, is that the set line can be placed below, above or near bars on the current currency pair chart. And this line will be either a support line or a resistance line. It is not recommended to place the line so, that it crosses any candlestick shadows. Let the line be maximally close to the envelope that joins the shadow ends, but without crossing it.
Of course, it is impossible to place the line so, that it does not cross the bars at all. But it can be placed with minimal crossing. The second setup stage consists in checking its touching the shadows, in both cases - when the line is above the bars, and when it is below the line. For Tenkan-sen this setup rule consists in the selecting the first indicator parameter for touching the candlestick shadows on the downtrend and on the uptrend.
The Main Parameters of the Indicator Alternative Ichimoku
For setting the indicator Alternative Ichimoku two calculation values are used.
The value SSP denotes the shift (delay) of the first ("priority") line
of the cloud. The position of the currency outside the cloud is a certain sign
of a trend existence.
The value SSK determines the shift (delay) of the second ("overdue") line of the cloud. The exit of currencies from the cloud signals about a trend change. The second value of this line is a stop-order of the second level. A line inside the cloud (stop-order line) is calculated by some coefficient from the value SSP. The coefficient was formed in practice and that is why levels of this line correspond with their names. When the stop-order line is broken through, the probability of trend turn is very high.
Setting up SSP
When setting up this parameter, we need to choose such position of the cloud, in which Close levels do not cross the stop-order line inside the cloud. Another way: candlestick extremums (High or Low) do not cross the stop-order line. One more SSP setup variant: extremums do not cross the forward line.
It is more convenient to choose SSP values for graph intervals with a sharp trend pivot. The parameter should be set up so, that maximums and minimums of candlesticks or their shadows touch the stop-order line (or priority line). If such touches exist both in uptrend and downtrend, we can say that SSP parameter is set up correctly.Example 01:
I will say it once again: in a correct setup, stop-order line limits the price both as a support level and a resistance level.
For this example it is extremely difficult to choose SSP parameters. That is why
in such difficult cases we should use both the priority cloud line and stop-order
line for a correct setup of SSP parameter:
Setting up SSK
The overdue indicator line is behind the priority one in SSK bars. Exactly this line can tell us about a trend rise or fall. Its meaning is not very large - to show rise or fall. The overdue line can be used as an additional level of support and resistance lines. It is used in quite difficult cases, for example when there is neither clear trend nor clear flat. These levels are located at the very end of the cloud.
The author tried to explain the main principles of choosing the indicator parameters applicable to the current currency pair chart. The small number of the indicator parameters allows easy setting up of parameters based on the given description. Except Alternative Ichimoku setup, the article gives the principles of setting up, suitable also for the indicator Ichimoku Kinko Hyo. This allows a reader using both indicators with better efficiency.
The source code of the indicator Alternative Ichimoku is located at: https://www.mql5.com/en/code/7070
Translated from Russian by MetaQuotes Software Corp.
Original article: http://articles.mql4.com/ru/339
Warning: All rights to these materials are reserved by MetaQuotes Software Corp. Copying or reprinting of these materials in whole or in part is prohibited.