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 in 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 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. It is called a cloud because the area between the two lines is colored to make it more noticeable on the chart.
- The cloud shows potential areas of support or resistance. When the price is above the cloud then the lines act as support, and when the price is below the cloud then the lines act as resistance.
- Leading Span B only uses historical data, yet it is called "leading" because its value is plotted 26 periods in the future.
The Formula for Senkou (Leading) Span B Is:
Senkou Span B=252 Period High+ 52 Period Low
How to Calculate Senkou (Leading) Span B
- Find the high price during the last 52 periods.
- Find the low price during the last 52 periods.
- Add the high and the low periods together, and then divide by two.
- Plot the value 26 periods into the future.
- Repeat steps one through four when each period ends.
What Does the Senkou (Leading) Span B Tell You?
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 which 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 9-periods. The fewer periods used in Span A means the indicator will react quicker to price changes.
If Senkou Span B is at the top of the cloud this is generally considered bearish. Short-term prices (Span A) have fallen below the longer-term price mid-point (Span B). The Senkou Span lines provide the mid-point of a price range because they are dividing the sum of the high and low by two.
When the 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 mid-point 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 it may bounce off 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.
The Difference Between Senkou Span B and a Simple Moving Average (SMA)
A simple moving average (SMA) sums up the closing prices over X number of periods and then divides the result by X to provide an average of all the closing prices. Leading Span B doesn't calculate an average, rather it calculates the mid-point of a 52-period range. These two indicators will look quite different on a chart. The Senkou Spans are also plotted 26 periods into the future, and that isn't the norm for an SMA.
Limitations of Using Leading Span B
Senkou Span B is a lagging indicator, even though its value is plotted 26 periods in 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 the Senkou Span A reacts quicker, but it too sometimes may not react quick enough.
Crossovers may occur after a large price move has already occurred, making the crossover signal almost useless for trading purposes. The Span lines may also not provide support or resistance, and the price may move right through them. Although, this too 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 Span B and the other Ichimoku indicators are providing.