Ichimoku kinkō hyō
Ichimoku kinkō hyō
Technical indicator created by Goishi Hosoda, a journalist who published his method in 1969 in a Japanese newspaper. It is a trend indicator, providing crucial information on the market's past memory and future projections. Requiring confirmation from several curves, entry and exit points are given slightly behind the movement, but with reliable trend reversal confirmations worthy of a good indicator. Ichimoku is highly reputed in the trading world and is frightening to see for the first time. In fact, the indicator is made up of several curves, each with its own role to play, providing information on all timeframes. These include the Tenkan, Kijun, Kumo cloud and Langging Span.
The basic parameters of the Ichimoku system are 9-26-52, corresponding to :
- 9 = One and a half weeks of stock market sessions (6+3)
- 26 = number of sessions in the Japanese month
- 52 = 2x26
This basic parameter for Japanese trading sessions applies extremely well to any asset and in any other country with different trading sessions. Even for cryptocurrencies, Ichimoku kinko hyo is formidable. Any other change in these parameters to match other stock market sessions seems to destabilize the system, even distorting the precision of the supports and resistances given by the different straight lines.
Tenkan Sen (転換線)
The Tenkan Sen represents the average price points over the last 9 periods. It is the line closest to the price that gives the pulse of the market. On its own, it doesn't indicate anything, but it can be used to determine bullish or bearish trends over a short period. If prices are in support or resistance relative to the average point between the two extremes of the last 9 periods.
The Kijun Sen (基準線)
The Kijun Sen represents the average price points over the last 26 periods. It is a crucial line which, if crossed, constitutes an important reversal signal. It is an equilibrium point, corresponding to a 50% Fibonacci retracement. The intersection of this line with the previous one has no notable significance. But their mutual interaction indicates the health of the market: while the Tenkan captures moments of volatility, the Kijun materializes key levels that the price will retest.
The Kumo (雲)
The Kumo (cloud) projected 26 periods into the future is made up of two straight lines whose air forms clouds that determine the trend. These two lines are the SSA and SSB. If the SSA is above the SSB, the cloud is green and the trend is bullish. Conversely, if SSA is below SSB, the cloud is red, the trend is bearish. This cloud represents the soul of Ichimoku.
Senkō Span A (SSA)
Senkō Span A is calculated by taking the average of the Tenkan and Kijun and projecting 26 periods into the future, to find key areas that have already been worked on and are likely to be retested.
Senkō Span B (SSB)
Senkō Span B is calculated by taking the average between the highest and lowest points over the last 52 periods, projected 26 periods into the future. 52 = 2x26 or two Kijun. On a weekly chart, the last 52 weeks, i.e. a year, will be projected 26 weeks ahead, i.e. 6 months ahead. There is little change, since it is influenced by the extreme points of the last 52 periods.
When these two curves cross, they form a so-called "twist", which is in no way predictive. But it does leave a point of weakness in the cloud, which sometimes acts as a powerful magnet to attract prices. When prices are in the cloud, they are in an equilibrium phase where the trend is not clearly defined. The thicker the cloud, the harder it is for prices to break through, and twists are a good place to do so.
Lagging Span (遅行)
The Chikō Span or Lagging Span represents the present price projected 26 periods into the past. This straight line is the market's memory. The trend will not be fully validated until this line has passed the cloud, Tenka, Kijun and previously reached prices, so that it has all the room to rise in an uptrend, as well as to fall in a downtrend. It reminds us of the levels we've already reached, and warns us about the future of the asset's price.
