Senkou Span A and B: Leading Spans Forming the Ichimoku Cloud

An in-depth exploration of Senkou Span A and Senkou Span B, which are key components of the Ichimoku Cloud in technical analysis.

Senkou Span A and Senkou Span B are significant technical indicators used within the Ichimoku Kinko Hyo system, a comprehensive tool for financial market analysis developed by Japanese journalist Goichi Hosoda in the late 1930s. These spans form the Kumo, or cloud, which is a crucial element of the Ichimoku Cloud and is instrumental in identifying support and resistance levels, trends, and potential buy and sell signals.

Definition and Formulas

Senkou Span A

Senkou Span A, also known as the Leading Span A, is calculated as the average of the Tenkan-sen (Conversion Line) and the Kijun-sen (Base Line) projected 26 periods into the future. The formula for Senkou Span A is:

$$ \text{Senkou Span A} = \frac{\text{Tenkan-sen} + \text{Kijun-sen}}{2} $$

Senkou Span B

Senkou Span B, or the Leading Span B, represents the average of the highest high and the lowest low over the past 52 periods, also projected 26 periods into the future. The formula for Senkou Span B is:

$$ \text{Senkou Span B} = \frac{\text{highest high (52 periods)} + \text{lowest low (52 periods)}}{2} $$

Components of the Ichimoku Cloud

• Tenkan-sen (Conversion Line): The average of the highest high and the lowest low over the past 9 periods.
• Kijun-sen (Base Line): The average of the highest high and the lowest low over the past 26 periods.
• Senkou Span A (Leading Span A): As defined above.
• Senkou Span B (Leading Span B): As defined above.
• Kumo (Cloud): The area between Senkou Span A and Senkou Span B.

Historical Context and Development

The Ichimoku Kinko Hyo system was developed by Goichi Hosoda and was first published in 1969. It gained widespread popularity in Japan and later across global financial markets due to its comprehensive approach to technical analysis. The system aims to provide the trader with an at-a-glance view of market conditions.

Applicability and Usage

Identifying Trends

• Bullish Trend: When Senkou Span A is above Senkou Span B and the price is above the Kumo.
• Bearish Trend: When Senkou Span B is above Senkou Span A and the price is below the Kumo.

Support and Resistance

• Support Levels: When the price is above the Kumo, the top (Senkou Span A) and bottom (Senkou Span B) lines of the Kumo act as support levels.
• Resistance Levels: When the price is below the Kumo, these lines act as resistance levels.

Signal Generation

• Bullish Signals: When the price moves above the Kumo and/or when Senkou Span A crosses above Senkou Span B.
• Bearish Signals: When the price moves below the Kumo and/or when Senkou Span A crosses below Senkou Span B.

Examples

Consider a chart where the current price trend is bullish:

• If the price is above the Kumo, Senkou Span A has crossed above Senkou Span B and both spans are projected 26 periods ahead, providing strong support levels in an upward trend.

Conversely, in a bearish scenario:

• If the price is below the Kumo, Senkou Span B is above Senkou Span A, indicating resistance levels in a downward trend.

Special Considerations

• Chikou Span (Lagging Span): This is the current price plotted 26 periods back and is used for additional confirmation.
• Time Sensitivity: The leading spans are projected 26 periods forward, making them predictive and not just reflective of past data.

Related Terms

• Ichimoku Cloud: The entire system which includes the Kumo, Tenkan-sen, Kijun-sen, and Chikou Span.
• Technical Analysis: The study of past market data primarily through charts, to predict future price movements.
• Japanese Candlestick Patterns: A style of financial charting used to describe price movements over time.

FAQs

What do Senkou Span A and B indicate in a chart?

They help identify current and future support and resistance levels and trend direction.

How do Senkou Spans improve trading decisions?

By projecting future support and resistance levels based on past price data, they help traders make better-informed decisions regarding entry and exit points.

Can Senkou Span A and B be used in all types of markets?

Yes, they can be used in various markets including stocks, forex, commodities, and cryptocurrencies.

References

• Hosoda, Goichi. Ichimoku Sanjin no Genten. Tokyo: Nihon Keizai Shimbun, 1969.
• Murphy, John. Technical Analysis of the Financial Markets. New York: New York Institute of Finance, 1999.

Summary

Senkou Span A and B are vital components of the Ichimoku Cloud, providing traders with clear visual cues for future support and resistance levels. By studying these spans, traders gain insights into market trends and potential price movements, making them indispensable tools in technical analysis.