The most prominent characteristic of Ichimoku trading is the cloud which defines support / resistance, trend direction, momentum as well as trade signals. Ichimoku trading applies five (5) timeframes to determine the current bias and momentum. The shortest timeframe is the Tenkan-sen which is calculated using a 9-period high adding a 9-period low and dividing by two (9-period high + 9-period low)/2)). Incidentally, this calculation is identical to that of the Donchian Channel Mid line, when applied to a 9 bar period. A slower short term timeframe, the Kijun-sen, applies the same formula on a 26 period (26-period high + 26-period low)/2)). Again, it’s the identical formula as for a Donchian Channel Mid line, applied to a 26 bar lookback.

The relationship between the two is similar to that of a 9 and 26 period moving average. The 9 period is faster and follows the price plot relatively closely whereas the 26-period is slower. As if to underline the momentum qualities of the indicator, the 9 and 26 periods are also the default values for calculating the MACD.

A typical Ichimoku trading scenario is therefore to wait for the Tenkan-sen to cross the Kijun-sen. However, although effective, this crossover will occur infrequently in strong trends. Therefore, additional signals may be located when price itself crosses the Kijun-sen or the Tenkan-sen lines. One may then look for thrust bars, i.e. close above/below the previous high/low in order to validate the signal.