Trading the Cloud - The Chikou Span (Part two)In this chapter I want to talk about how the Chikou span can be used as a pureSupport and Resistance indicator. I have decided to dedicate a whole post tothis, so lets get started. The Chikou Span can provide clearlevels of Support and Resistance One of the main things that is often overlooked or not really talked about is the factthat the Chikou span can be used to reference some very powerful support andresistance lines. To begin to understand, look at this chart
Looking at the chart above, you can see that the chikou span can provide supportand resistance lines for future moves. Because the chikou span represents priorclosing prices, it is perfect for mapping past areas of support/resistance.We can find these Support and Resistance lines by drawing a horizontal line acrossthe points created by the Chikou span, this helps us to see these key levels andutilise on our analysis and trading decisions.In the chart above I have taken an example of support and resistance by drawing aline across 3 points of the chikou span. I will break this down to explain it better. As you can see in the first instance, price at first respected the support, but then 11candles later broke through, turning the support into a resistance.Once a support line is broken it becomes resistance, and visa versa. Now lets look at the second point of resistance
You can now see price again respected the resistance and struggled to breakthrough. until 6 candles later where it seems to have broken upwards but soondropped back below. So we are at the point on the chart where price is undecided on direction.Will it respect the resistance and move down?, or will it respect the support andmove up?
Luckily because price is now trading in the Kumo cloud we are advisedto not open any new trades until price breaks out from either side.And of course you know this because you should have read my beginners Kumotrading guide.....right?.....good. So we now wait, if price breaks above Kumo we can open a BUY tradeif price breaks below Kumo cloud then we would open a SELL trade.This is a great example of how we can use 2 or more of the componentsof ichimoku to decide where price will move. There is a lot more detail to go into about how we can use the Chikou span as aSupport and Resistance tool, including how sometimes it can almost mimic thecommon S/R Fibonacci indicator which is used by most Forex tradersworldwide, I will be covering this in my advanced ichimoku guides in future blogposts. Lastly I want to leave you with this chart.
You can see by just adding some simple lines across recurring points of the ChikouSpan can help you plot some very reliable Support and Resistance areas.load up some charts on your PC and try doing this yourself now. If you have any questions or there is something you didnt understand and need alittle more help, dont hesitate to leave a comment below and I will do my best tohelp you.We have now covered the basics of the Chikou Span, in my next blog post I will belooking at the Tenkou Sen. See you thenChris (admin)