Ichimoku Kinko Hyo

This is a summarized version of this Japanese system for Technical Analysis. We will touch upon the key elements of this method and its interpretation. For more details, we recommend that you read available books or complete an online course on the subject along with Japanese Candle Sticks. The Ichimoku technique was created by Goichi Hosoda to understand the movements and trends of the rice market. After three decades of research, he published a book about his trading system in 1968.

Ichimoku Kinko Hyo translates to “one glance equilibrium chart” (Kinko means “equilibrium” and Hyo is Japanese for “chart”). The objective of the system is to visualize the trend of the underlying prices instantly along with the support and resistance levels.

Given above is the illustration of the trading system on the weekly chart of the S&P500 (Mid 2017 to end 2019). The key components on the chart are: the Ichimoku Cloud, The Tenkan Sen, The Kijun Sen and the Chikou Span.

The Ichimoku Cloud: plays a major role in reading and interpreting the chart. If identifies the trend in prices and also provides the major support and resistance areas. In the SP500 chart, the cloud saw a consistent uptrend which then flattened out for a few months and presently displays a continuation of the uptrend. Twists in the cloud indicate that the trend could be losing momentum and could move to a consolidation phase.

Tenkan Sen: it is the 9 period average of the highest and lowest price, in the illustration this is the 9 week average of the highest and lowest price (add the highest price to the lowest price and divide the total by 2). The Tenkan Sen displays the equilibrium over the last 9 periods. It is the fastest moving indicator on the chart and the steeper its angle of movement, the stronger the trend.

Kijun Sen: it is the 26 period average of the highest and lowest price. It indicates the equilibrium over the last 26 periods. As long as the prices don’t break through the Kijun Sen, the trend remaining confirmed. A break through the Kijun Sen puts the continuity of the trend in doubt. If the price moves away from the Kijun Sen quickly, it tends to pull back to it, hence it provides a good stop loss or entry point in a trend. The steeper the angle of its movement, the stronger the strength of the trend. Any previous flat areas of the Kijun Sen are considered to be support or resistance areas.

Chikou Span: It is considered to be the filter of the Ichimoku system. When the markets are in an uptrend or a downtrend, there are two important things to remember about the Chikou Span:

1. Everything stands in the way of the Chikou Span

2. Any signal given by the prices has to be confirmed by the Chikou Span