Ichimoku Kinko Hyo

This thread will be dedicated to the indicator Ichimoku Kinko Hyo, which is useful in determining levels in support/resistance and staying out of consolidating markets "at a glance".

There are several facets to Ichimoku Kinko Hyo that when learned and utilized, can create a picture of what the market will possibly do.

I will attempt to share with everyone here all I've learned about Ichimoku Kinko Hyo in the following posts. It will be a long explanation as I want it to be thorough. It may take me a day or more to put all the info together so do bear with me, and try not to ask questions until I say that I've put everything that I wanted to in as you may have a question that I am fixing to get to in my next posts.

Please note that there is no real SYSTEM here, and that one Ichimoku trader can take a trade that another Ichimoku trader is not liking.

Reason for this thread? To be helpful, and I'd like to be able to discuss Ichimoku Kinko Hyo here at FF(a vague topic around here) with newbies and pro's alike. Maybe you guys can teach ME a thing or two as it is very subjective in nature

Ichimoku Kinko Hyo has 3 parameters for period numbers. The parameters I use are (7,22,44). You may find others that work best for you, but that's your decision.

So as not to put a bias on what parameters you use, let us assume you have added:

Ichimoku Kinko Hyo(A,B,C) where A, B, and C are positive whole integers(periods).


Tenkan-Sen

(HIGHEST HIGH + LOWEST LOW)/2 for the past A periods

The reason why I prefer Ichimoku Kinko Hyo lines to regular, old moving averages is because they take the average of the two extremes over a certain number of periods as opposed to the averages of closes(or open, high, low). What moving averages fail to recognize is usually all the extreme values that price moves to. In my mind, these outliers in price are still of importance, and thus should be calculated in the lines that I am seeing.

The Tenkan-Sen is shown below in blue. Please ignore all the black blobs you see(I just blacked out all the other Ichimoku lines) When looked at by itself, the main thing we want to notice is the slope of the line, and also the price as it relates to the Tenkan-Sen. Oftentimes, the Tenkan-Sen will give us a good indication of support/resistance also.

Now, the easiest way for me to post chart examples was to add vertical lines referencing points of interest.

Example #1

Notice the Tenkan-Sen after the red vertical line. The Tenkan-sen is very positively sloped, with very little flat ground in between each up movement. Obviously, the price reflected the same sentiments. Observing the slope of the Tenkan-Sen can tell us about the trend strength. In my case, the Tenkan-Sen is measuring the average of the extremes of the last 7 candles, and it is telling me that the average of the extremes is going up and up.

Example #2

Notice the Tenkan-Sen after the yellow vertical line. The Tenkan-Sen is indicating a down trend to us due to its negative slope, but that's not the point of this example. The 4 candles following the yellow vertical line come up to test the Tenkan-Sen resistance, but to no avail. Sometimes, the Tenkan-Sen can show us good areas of resistance/support. Please remember that there are other parts to the Ichimoku, and generally you should use ALL the parts to confirm things you are seeing. This was a good example here though.

Example #3

Notice the Tenkan-Sen after the purple vertical line. The Tenkan-Sen is pretty flat here, and we look at the candles, and voila, consolidation. It's only momentary, but it still counts.

General Rules About Tenkan-Sen

 

1. Positive slope with little flat ground in between uprisings = Uptrend
2. Negative slope with little flat ground in between downfalls = Downtrend
3. Useful for determining Support/Resistance. (Price will often bounce off of the Tenkan-sen, good for entries sometimes)

Kijun-Sen

(HIGHEST HIGH + LOWEST LOW)/2 for the past B periods

Usually we would want B to be larger than A was.. and in case you forgot, my B is typically 22.

The Kijun-Sen is shown below in red. It is quite a bit slower than the Tenkan-Sen and the slope is important, but not quite as important as the Tenkan-Sen's slope. It is likely that the Kijun-Sen will have a flat slope, but price will be moving in a direction still(not consolidating). I use the Kijun-Sen more as a resistance level. There are also some that use the Kijun-Sen as an entry line(BUY above, SELL below, on candle close). I personally think it is good for exits as a S/L, but don't use it much for entries. I will try to explain this more with these examples:

Example #4

Look at the red vertical line. Notice how the Kijun-Sen is working as a major resistance line? I mentioned before that some would sell at a close below the Kijun-Sen. With the Kijun-Sen, acting as such strong level of resistance, it may be a good strategy. The thing that would have made me been cautious here was the positive slope of the Kijun-Sen leading up to the red vertical line. I probably would have waited until the second bounce when the Kijun-Sen was more flat, and confirmed resistance AGAIN.(This marked with the Yellow vertical line.)

Also, I mention using the Kijun-Sen for exits earlier. Suppose I had taken that trade short earlier on the second bounce. Sometimes, I'll move my S/L with the Kijun-Sen. That means I would have been stopped out @ the green vertical line.

Notice how on the whole chart, that when price is below the Kijun-Sen, it usually is going down as long as the slope of the Kijun-Sen is down or flat.

Example #5

After the vertical purple line indicated below, we see the Kijun-Sen acting as perfect support as it goes up for a bit. Just wanted to point that out It doesn't always look nice, but sometimes it helps if you use your imagination. And also, PLEASE remember, we still have the rest of the indicator to learn....

General Rules About Kijun-Sen

1. Price is above Kijun-Sen = BUY
2. Price is below Kijun-Sen = SELL
3. Makes for really good Resistance/Support(better than Tenkan-Sen)
4. Slope is important, but not that important... Flat is OK, as long as there is some slope in the direction you are trading(Tenkan-Sen is more important)
5. Can make for a decent Stop Loss

Tenkan-Sen and Kijun-Sen Cross

There are those that trade the cross of the Tenkan-Sen and Kijun-Sen for their entries. I recommend larger timeframes for doing this.

I have my Tenkan-Sen in blue and Kijun-Sen in red shown below.

Notice how every time the Tenkan-Sen goes above the Kijun-Sen, price is moving up. And how everytime Tenkan-Sen crosses below the Kijun-Sen price moves down. Towards the end, we start to see the problem of this(false crosses in consolidating markets). Maybe there is something I haven't talked about yet that could have helped us out?

Generally speaking, it is good to be long when the Tenkan-Sen is above the Kijun-Sen(you don't have to use it for only entries)

The same goes for being short and the Tenkan-Sen being below the Kijun-Sen.

Also, if you think back to last lesson about the Kijun-Sen. Look and see if I traded crosses how using the Kijun-Sen as a S/L would have faired. It grabs some moves better than others, but all in all, it's not too shabby.

General Rules About Tenkan-Sen and Kijun-Sen Cross

 

1. When Tenkan-Sen crosses below Kijun-Sen, SELL
2. When Tenkan-Sen crosses below Kijun-Sen, BUY
3. Doesn't have to be for entries. In fact, I use the cross mostly for trend confirmation.

Your colors of blue and black are too close in colors to see. When viewing close, it is still hard to see the cloudy shapes. Can you change the colors so that we can get a better view?

I am glad your discussing this system since you hear and see very little about it. Keep up the excellent work!

Hey WHTenn,

Thanks for the encouragement! This is a more daunting task than I realized, but I think it will benefit everyone if I do it(myself included), so I will get there slowly but surely. Probably later tonight will be my next installment, or I may fit one in this morning, we'll see.

Now, black and blue. I quoted myself under your quote. My idea is to introduce Ichimoku Kinko Hyo one piece at a time, in a sequence that would make sense to most people. Therefore, I have blacked out all other aspects of ichimoku(I can't make them invisible). Just try to ignore the black. Now, if you are still having trouble seeing the blue, let me know, and I'll try to make a new chart, but all those black blobs are meant to be ignored so we can focus on the pieces I am describing. It's easy to get lost in all the lines. At the end, when all the pieces are introduced, I will go more into using all the pieces together to make high probability trades.

Regards,

Kevin

The Kumo

The Kumo is made up of two lines:

Senkou Span A

(TENKAN SEN + KIJUN SEN)/2 time-shifted forwards (into the future) B periods

I have indicated my Senkou Span A below in Green

Senkou Span B

(HIGHEST HIGH + LOWEST LOW)/2 for the past C periods time-shifted forwards (into the future) B periods

I have indicated my Senkou Span B below in Yellow

In case you haven't caught on yet, my B is 22, and my C is 44.

The Senkou Span A and Senkou Span B and the area shaded in between them is collectively known as the Kumo(or cloud).


The important thing to realize here is that the Kumo is made of PREDICTIVE lines. That is to say that the Senkou Span A and B are shifted INTO THE FUTURE, and therefore become predictive. This comes in handy as we look at the price in relation to the Kumo.

In my mind, I think of the Kumo as an equilibrium point. Price is typically drawn to the Kumo, and when it is inside the Kumo, price is happy, and therefore consolidating.

I also use the Kumo for a lot of entries. Generally speaking, the price moves up when above the Kumo and down when below the Kumo. REMEMBER THAT INSIDE THE KUMO PRICE TENDS TO CONSOLIDATE.

Also, Kumo makes for GREAT support/resistance points. So many times I have seen the price bounce off the Kumo with perfection(sort of uncanny).

Usually when one of the Senkou Span's goes flat for a while, this flat price line becomes a point of interest. USUALLY this will prove to be major support/resistance. I will try to explain all these thoughts with examples.

LASTLY, when the Senkou Span A is above the Senkou Span B in the future(creating a green cloud) this is usually a good sign to be LONG.

When Senkou Span A is BELOW the Senkou Span B in the future(creating a yellow cloud) this is usually a good sign for SHORT.

Example #6

Please draw your attention to the first red vertical line. Look at what the price does just after this point. It cuts through the Kumo, and as I stated earlier, when price is above the Kumo, it's usually good to go LONG. I use this for entries A LOT. Of course the reverse is true for Shorts.

Example #7

Please look at the yellow vertical line. Notice the Senkou Span B(in yellow) after the vertical line. It is nice and flat. I mentioned earlier that when the kumo flattens these create points of interest. Now, as we notice the Senkou Span B flattening, we thus assume this horizontal line of price to be a major point of interest(support in this case). Several candles later, price comes down to test this point of interest, and guess what happens?! It works. It doesn't always, but it's worth knowing. Same would be true going the other way with the Senkou Span A. It's usually the Kumo line furthest away from price that will flatten.

Example #8

Look at the Green vertical line. The candle right after it goes to test the Kumo, and the Kumo holds true. Just another instance where the Kumo works as great support/resistance... Did you notice that the Senkou Span B was running flat prior to this bounce? An astute individual would have taken note of this area of support.



Also worth noting is that on this chart the Senkou Span A is above the Senkou Span B during the whole uptrend. This creates a green Kumo on the way up. We generally look for the green Kumo for our Longs, and yellow Kumo for our Shorts.

General Rules About Kumo

 

1. If Senkou Span A is above Senkou Span B, LONG
2. If Senkou Span A is below Senkou Span B, SHORT
3. Flat Senkou Span lines make for good Support/Resistance areas
4. Inside the Kumo, price tends to consolidate
5. When price moves above the Kumo = BUY
6. When price moves below the Kumo = SELL

I'm gonna print this off, thank you very much! Been looking for a good guide for awhile

ps I know of one trader that trades the kumo breakout with success

This is one of the best threads I've seen here.
Keep it up, Guy.

Appreciate the praise guys! To be honest, this is a bit of a chore, but like I said, it will be worth it in the end for all of us(me included). The nice comments along the way certainly encourage me to waste my time typing out all of this stuff We're almost done... We will have our last piece, the Chikou Span, hopefully later tonight, and then I will go more into using all the pieces collectively, S/L's, Timeframes, and other various things I can think of that I think would be useful.

hai. the ichimoku is one a great tools, and also giving a beautiful views. great for having u share it to us. anyway, what timeframe do you use? thx

Chikou Span

CURRENT CLOSING PRICE time-shifted backwards (into the past) B periods.

The Chikou Span is important because it is the current price lagging behind the REAL, ACTUAL current price. What this is useful for is seeing whether the price now is higher or lower than it was B periods ago. Essentially it is the same as looking at a B candle chart(22 candles in my case), and determining whether it has moved up or down in those B candles.

As a general rule, if the Chikou Span is above the price in the past, then the price has moved up since that point in time, and this is considered BULLISH.

If the Chikou Span is BELOW the price in the past, then the price has moved DOWN since that point in time, and thus is BEARISH.

You COULD use the slope to determine trend strength and what not, but personally, I will use candles instead, as they are essentially synonymous with the exception that you can see more information by looking at candles(high, low, open, close).

Another use for the Chikou Span is determining support/resistance levels. It is most useful in determining support/resistance in higher timeframes. This is hard to explain without an example, but basically, when you have a change in slope of the Chikou Span from negative to positive or vice versa, then the pivot point created is generally a good indicator of support/resistance. Remember that on bigger timeframes this will be more meaningful.

Alright, for my examples, realize that it is hard to backtest the ichimoku kinko hyo because it has lagging AND predictive lines. Anyway, on my chart below you will see one color for each example, but there will be 2 vertical lines. The first vertical line of the certain color will be to point out the Chikou Span at THAT POINT IN TIME, and the second vertical line will be to point out the price at the SAME POINT IN TIME. Is this confusing? I hope not... Just remember that the Chikou Span lags, and it's hard for me to show you examples.

Example #9

Alright. Draw your attention to the first purple vertical line. This is to point out the Chikou Span. YOU ARE NOT LOOKING AT THE PRICE HERE. ONLY THE CHIKOU SPAN Where is the Chikou Span? Just below the price. The SECOND purple vertical line is the PRICE CORRESPONDING to the Chikou Span of the first vertical line. As I mention earlier, when the Chikou Span is BELOW price in the past, it is a good sign for the Bears. Look at price after the second purple vertical line. It reflects the bearish sentiments as well.

Example #10

I expect to lose some people with this one, but here we go anyway. Look at the first red vertical line. REMEMBER YOU ARE LOOKING ONLY AT THE CHIKOU SPAN AT THIS POINT because it is in the past. The second red vertical line corresponds to the Chikou Span indicated by the first red vertical line. You are looking at the PRICE at the secondred vertical line. The Chikou Span indicated by the first red vertical line goes from positive slope to negative slope, creating a pivot point. These "pivot points" are generally good areas of support/resistance. I have denoted this area of resistance with a red HORIZONTAL line.

If we look back to our price at the second red vertical line, and see what the price does following this point, we can see that the price has some trouble passing the Chikou Span resistance pivot point(red horizontal line). Also worth noting is how this point of resistance becomes support later on(yellow vertical line).


General Rules About Chikou Span

 

1. If Chikou Span is above price in the past, BULLISH
2. If Chikou Span is below price in the past, BEARISH
3. Makes for good Support/Resistance at Chikou Span pivot points(Better on longer timeframes)

This is Excellent! I am learning a lot. Please continue with the work your doing. Very impressive and your method of introducing this system is great.

I was done for the night until I ran across this. Couldn't pull myself away. You're doing a splendid job of presenting this. Thank you for your time and effort.

Bill

Hey there, great work. Thanks for this thread, although I am not sure I believe in the indicator. Why do you imagine this works better than your own careful observation of the price activity? Or is the idea simply to automate the "detection" of consolidation, for use in bots..etc?

Hello Kharvell,

Thank you so much for this thread. I'm truly learning a lot and I appreciate your hard work. I will continue to keep up and read all your posts.

Hi Kevin,

Thank you for persevering and teaching us all about this masterpiece of an indicator that have been used for ages. Much appreciated.

I notice that your charts show 5M TFs and that really intrigued me as I was told that one should only trade the Ichimuko on H1 and above. Also, I have read that the settings are different for Fx than Stocks for instance. However, the point I am making is that (a). you are doing a sterling job (no pun intended) and (b). that I would like to generate some enthusiasm for this great indicator.

I have been using it on the H1 chart for the GBP/USD with settings of 8/13/28 and this is where I would like to discuss the settings with you please. (How did I get to these settings you may ask? First 2 are Fibonacci numbers and 28 had a better "fit" on the H1-chart (it should have been 34 according to the Fibonacci sequence as you well know).

Your settings of 7/22/44 refers:

22 - after a couple of hours and the "penny dropped", my setting is 28 (will tell you later why)

44 - now that is a very interesting number and I will endeavour to research that starting from 39 to 34 to 44 and 55 to see what it produces.

Having said all of that, would you use the same settings on the H1 charts?

I will look at my M5-charts to see how my settings and yours correspond and will place my findings here once completed. (After your permission, that is)

Maybe we can make this a daily occurrence in meeting here to discuss possible directional changes, etc.

Looking forward to hearing your valued comments.

Best wishes for continued success.

Hi Kharvell, Hercs

This is great work, frank i'm searching this Ichimoku indicator and want to learn for long time ago, just this time found great man with great idea here, please keep sharing your knowledge.

Your are the man we need to learn this indicator !

Keep going man !

Kevin, I do believe that I want to share my 5M-chart experience with you after my preliminary research. The "penny finally dropped" for me and I can only thank you for opening my eyes to something I had all the time and never understood clearly.

I also wish to discuss the use of the Chikou Span with you, but I do not want to be seen to want to "high jack" your Threat here. So, with your permission I would like to take the opportunity to discuss these two issues: 1. Settings on 5M-chart (H1 to follow) and 2. the usefullness of Chikou Span.

Have a great weekend.

Best personal regards.

Hi Kharvell, thank you for sharing this with us. Yes it certainly will be a chore and a big one at that, but I hope that you will persevere as I and obviously many others will be following this thread, along with you, with keen interest.

In your post #4, referring to the second bullet point, should it not be crosses above Kijun-Sen, Buy?

Thanks again,
Sage.