What Is Senkou (Leading) Span B?
Senkou Span B, also called Leading Span B, is one of five components of the Ichimoku Cloud indicator. Leading Span B works in conjunction with the Senkou Span A line to form a cloud formation known as a kumo. The cloud provides support and resistance levels. Both Senkou Span A and Span B are plotted 26 periods into the future, providing a glimpse into where support and resistance may form next.
- Senkou Span B forms a cloud with Senkou Span A which shows potential areas of support or resistance.
- When the price is above the cloud, the lines act as support and when the price is below the cloud, the lines act as resistance.
- Leading Span B only uses historical data, yet it is called “leading” because its value is plotted 26 periods into the future.
Understanding Senkou (Leading) Span B
Senkou Span B and Senkou Span A form the cloud formation in an Ichimoku Kinko Hyo indicator, also called the Ichimoku Cloud. The Ichimoku Cloud includes five different lines that provide traders with different pieces of information.
Senkou Span B moves slower than Senkou Span A because Span B is calculated using 52 periods of data. Senkou Span A is calculated using 26 periods and nine periods. The fewer periods used in Span A mean that the indicator will react quicker to price changes.
If Senkou Span B is at the top of the cloud, then this is generally considered bearish. Short-term prices (Span A) have fallen below the longer-term price midpoint (Span B). The Senkou Span lines provide the midpoint of a price range because they are dividing the sum of the high and the low by two.
When Senkou Span A is forming the top of the cloud, it is considered bullish, since the shorter-term price (Span A) is moving above the longer-term midpoint price (Span B).
Leading Span A and Span B crossovers may signal a trend change. When Span A crosses above Span B, it may indicate the start of an uptrend. When Span A crosses below Span B, a downtrend or correction may be starting.
When the price is above Senkou Span A and/or Span B, some traders view them as providing potential support. If the price falls to these lines, then it may bounce off of them. When the price is below Leading Span A and/or Span B, these lines are viewed as providing resistance or possible areas to sell or short sell.
Senkou (Leading) Span B Calculation
Senkou Span B=252 Period High+ 52 Period LowPlot value 26 periods into the future.
The calculation is as follows:
- Find the high price during the last 52 periods.
- Find the low price during the last 52 periods.
- Add the high and low periods together, then divide by two.
- Plot the value 26 periods into the future.
- Repeat steps one through four when each period ends.
A simple moving average (SMA) sums up the closing prices over X number of periods, then divides the result by X to provide an average of all of the closing prices. Leading Span B doesn’t calculate an average; rather, it calculates the midpoint of a 52-period range. These two indicators will look quite different on a chart. The Senkou Spans also are plotted 26 periods into the future, and that isn’t the norm for an SMA.
Limitations of Senkou Span B
Senkou Span B is a lagging indicator, even though its value is plotted 26 periods into the future. The indicator can be slow to react to price changes, since it can take a long time for the price to generate a new high or low over 52 periods. Luckily, Senkou Span A reacts quicker, but also, sometimes it may not react quickly enough.
Crossovers may occur after a large price move already has occurred, making the crossover signal almost useless for trading purposes. Also, the span lines may not provide support or resistance, and the price may move right through them. However, this provides information about the trend and its direction.
Senkou Span B should be used in conjunction with other technical indicators and methodologies, such as price action trading, to help confirm or reject the information that Span B and the other Ichimoku indicators are providing.