A Better Measure of Support and Resistance

As mentioned earlier, one of the kumo's most unique aspects is its ability to provide a more reliable view of support and resistance than that provided by other charting systems. Rather than providing a single level for S/R, the kumo expands and contracts with historical price action to give a multi-dimensional view of support and resistance. At times the kumo's ability to forecast support and resistance is nothing short of eerie, as can be seen in the chart below (Figure I) for USD/CAD, where price respected the kumo boundaries on five separate occasions over a 30-day span.

Figure I - Kumo Support and Resistance

The power of the kumo becomes even more evident when we compare traditional support and resistance theory to Ichimoku's more comprehensive view of support and resistance via the kumo.

In the chart for Figure II below, we have added a traditional down trendline (A) and a traditional resistance line at 1.1867 (B). Price managed to break and close above both the down trendline and the single resistance level at point C. Traditional S&R traders would take this as a strong signal to go Long this pair at that point. A savvy Ichimoku practitioner, on the other hand, would take one look at price's location just below the bottom edge of the kumo and would know that going long at that point is extremely risky given the strong resistance presented by the kumo. Indeed, price did bounce off of the kumo and dropped approximately 250 pips, which would have most likely eradicated the long position of the traditional S/R trader.

Frustrated by his last losing trade, the traditional S&R trader spots another chance to go long, as he sees price break and close above the prior swing high at point D. The Ichimoku trader only sees price trading in the middle of the kumo, which he knows is a trendless area that makes for uncertain conditions. The Ichimoku trader is also aware that the top boundary of the kumo, the senkou span B, is close at hand and may present considerable resistance, so he again leaves this dubious long trade to the traditional S/R trader as he awaits a better trade opportunity. Lo and behold, after meeting the kumo boundary and making a meager 50 pips, the pair drops like a stone nearly 500 pips.

The example given above illustrates how Ichimoku's multi-dimensional view of support and resistance gives the Ichimoku practitioner an "inside view" of S/R that traditional chartists do not have. This enables the Ichimoku practitioner to select only the most legitimate, high reward trade opportunities and reject those of dubious quality and reward. The traditional chartist is left to "hope" that their latest breakout trade doesn't turn into a head fake - a shaky strategy, at best.

Figure II - Traditional S/R Theory vs. Ichimoku Kumo