Ichimoku Kinko Hyo

The Ichimoku Kinko Hyo, also known as the Ichimoku Cloud, is a versatile indicator that defines support / resistance, trend direction, momentum and trade signals. The indicator was developed by Goichi Hosoda who published a book about it in 1969.

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The most characteristic feature of the Ichimoku indicator is the cloud (Kumo). It is comprised of two lines, the Senkou Span A (green) and the Senkou Span B (red). A trend can be found by determining whether prices are trading above or below the the cloud. If prices are trading within the cloud, it indicates a sideways market.

Furthermore, an uptrend is considered strong if the Senkou Span A (green line) has crossed above the Senkou Span B (red line), plotting a green cloud. A strong downtrend has a falling Senkou Span A (green line), crossing below the Senkou Span B (red line) and plotting a red cloud. Because the cloud is displaced 26 bars forwards, it can also provide a forecast of future support / resistance.

The Tenkan-sen (blue) and the Kijun-sen (red) lines are used to identify faster and more frequent market moves. The Tenkan-sen is calculated using a 9-period high adding a 9-period low and dividing by two (9-period high + 9-period low)/2)). The Kijun-sen applies the same formula on a 26 period (26-period high + 26-period low)/2)).

The relationship between the two is similar to that of a 9 and 26 period moving average. The 9-perid is faster and follows the price plot relatively closely whereas the 26-period is slower. The 9 and 26 are the same periods used to calculate MACD.

The classic signal is to wait for the Tenkan-sen to cross the Kijun-sen. However, although effective, the signal will occur infrequently in strong trends. Therefore, additional signals may be located when price crosses the Tenkan-sen, alternatively the Kijun-sen.

The most favorable setups are aligned with the cloud and the major trend (above green cloud = bullish / below red cloud = bearish). The cloud can also be used as support for retracement entries in an uptrend. Conversely, it can be used as resistance for retracement entries in a bigger downtrend.

Finally, the Chikou Span is the close displaced 26 bars back, showing the current momentum.

The premium version identifies eight (8) different conditions:

  • Price vs. Tenkan (Tenkan Cross):  up, down 
  • Price vs. Kijun (Kijun Cross): up, down
  • Tenkan vs. Kijun (Tenkan Kijun Cross): up, down, neutral 
  • Price vs. Kumo: up, down
  • Price vs. Kumo midline: up, down

 The above conditions can be read directly from the current price information whereas the following are projected 26 bars forward or backwards:

26 bars forward:

  • Senkou A vs. Senkou B (Senkou Cross) up, down, neutral

 26 bars backwards:

  • Chikou vs. price (Momentum(26)): up, down
  • Chikou vs. Kumo (Long Term Momentum): up, down, neutral

Based on these conditions, one may define a composite trend to be displayed as paintbars. A bullish/bearish trend will see at least one bullish/bearish condition and allow neutral states from other conditions. A composite trend reading with contradictory readings, i.e. both bullish and bearish conditions will be interpreted and display as neutral.

Apart from a composite trend reading displayed as paintbars, the indicator also offers:

  • Trade signals based on on the composite trend
  • Key signals
  • Alerts (log and sound)
  • Market Analyzer signal and trend scanner

$195

Each license is valid for 2 PCs