As you may know, uses in its calculations (high + low)/2 to calculate Tenkan-sen (Conversion line) and Kijun-sen (Base line) for different periods: Tenkan is a shorter period, so it reacts faster to reversals, while Kijun is slower, so it reacts slower, and it is contextually more reliable due to how conservative it is.
Why does the works? My theory that inspired this indicator is that it works because it looks at 50% retracements from highest point to the lowest point. In other words, Tenkan plots the 50% line between the peak and the trough from the recent period, which has proven to often be a good estimation for retracements. Similarly, Kijun applies the same, but for a longer period*.
However, if we look at , it is often the case that price retracts to those magical percentages: 23.6%, 38.2%, 50%, 61.8%, and sometimes even 88.6% and 78.6%. Why this happens is largely unknown to the academic community, but, empirically, it often seems that these numbers just work.
Therefore, I wanted to apply this principle to calculations, and instead of calculating (high + low)/2, I calculated both (high + low) * 0.382 and (high + low) * 0.618. These lines should provide pessimistic/bearish estimations, and optimistic/bullish estimations, respectively. Naturally, these results in 4 extra lines: a Tenkan/Kijun pair and a Tenkan/Kijun pair.
Therefore, applying this indicator will crowd the chart quite a bit: you have 6 lines on the chart among which 2 of them are the original Tenkan and Kijun lines, and the other 4 are Fib-inspired Tenkan/Kijun lines.
As with most indicators, usage is subjective to the user and relative to the chart. However, some ways in which this indicator can be used are as follows:
- In a strong uptrend, price is typically above both Ichi Kijun and Tenkan. In this case, you can use this indicator to provide you with a new pair of Kijun/Tenkan that provide the same usage as before. Similarly, in a downtrend, the Kijun/Tenkan apply.
- Using the new lines, one can apply R/S levels, crossover signals, overbought/oversold areas, price channels, retracement levels, and trend indications.
- One may simply use it out of convenience, as it automatically computes potential areas of interest without having to perform manual work.
Please note that because the indicator was so full, I did not keep the Cloud, nor did I keep the Chikou span (Lagging span.) These can be easily implemented, but it would crowd the chart to an extent that it would be difficult to gauge much information. However, I did consider adding them as optional indicators that are disabled by default, and I may potentially do so in the future. For reference, this would help by simply disabling everything else besides the "bullish Ichi" in an uptrend.
* I have heard people referring to as "a glorified average mean," but, mathematically, I don't believe there is much relationship between MAs and . However, I acknowledge the visual similarity between the two and the potential to use both in a similar fashion, so one may interpret this indicator as such if they please.