What Is The Ichimoku Kinko Hyo & How To Trade With It

ichimoku kinko hyo

This indicator is now used by many Japanese trading floors because it offers multiple tests on the price action, creating higher probability trades. Although many traders are intimidated by the abundance of lines drawn when the chart is actually applied, the components can be easily translated into more commonly accepted indicators. This height represents volatility as larger price movements form thicker clouds, which creates stronger support and resistance. As thinner clouds offer only weak support and resistance, prices can and tend to break through such thin clouds. Stop Loss – fast line, slow line, and cloud may be potential support and resistance levels.

In Japanese, “ichimoku” translates to “one look,” meaning traders only have to take one look at the chart to determine momentum, support, and resistance. Conventionally, the default settings of the indicator work well with different assets and various timeframes. Short-term traders can shorten the periods of the Tenkan-sen and Kijun-sen, while long-term traders can increase these periods.

Ichimoku Kinko Hyo: what it is and how to use it – Capital.com

Ichimoku Kinko Hyo: what it is and how to use it.

Posted: Fri, 16 Mar 2018 07:00:00 GMT [source]

As mentioned earlier, one of Kumo’s most unique aspects is its ability to provide a more reliable view of support and resistance than that provided by other charting systems. Rather than providing a single level for support and resistance, the Ichimoku Kinko Hyo Cloud expands and contracts with historical price action to give a multi-dimensional view of support and resistance. Thus, a simple look at an Ichimoku chart should provide the Ichimoku practitioner with a nearly immediate understanding of the sentiment, momentum, and strength of the trend.

Ichimoku Kinko Hyo

Thus, the Kijun Sen can be relied upon as a significant level of price support and resistance (see highlighted areas in the figure below). The angle of the Tenkan Sen can also give us an idea of the relative momentum of price movements over the last 9 periods. A steeply angled Tenkan Sen will indicate a nearly vertical price rise over a short period of time or strong momentum, whereas a flatter Tenkan Sen will indicate lower momentum or no momentum over that same time period. Ichimoku Kinko Hyo is a purpose-built trend trading charting system that has been used in nearly every tradable market. It is unique in many ways, but its primary strength is its use of multiple data points to give the trader a deeper, more comprehensive view of price action. This deeper view, and the fact that Ichimoku is a very visual system, enables the trader to quickly discern and filter “at a glance” the low-probability trading setups from those of higher probability.

This confirmation comes in the form of the Chikou Span crossing through the price curve in the direction of the proposed trade. If it crosses through the price curve from the bottom up, then it is a bullish signal. If it crosses from the top down, then it is considered a bearish signal. In its most basic interpretation, when the price is trading above the Ichimoku Kinko Hyo Cloud, that is a bullish signal since it indicates the current price is higher than the historical average.

Similarly, the Conversion Line crossing below the Base Line during a downtrend is a bearish signal. First, notice that IBM was in an uptrend from June to January as it traded above the cloud. Second, notice how the cloud offered support in July, early October, and early November. This means it is plotted 26 days ahead of the last price point to indicate future support or resistance. The Ichimoku Kinko Hyo indicator was originally developed by a Japanese newspaper writer to combine various technical strategies into a single indicator that could be easily implemented and interpreted.

On a bearish chart, the Tenkan Sen will likewise act as a level of resistance. While many may compare the Tenkan Sen to a 9-period simple moving average (SMA), it is quite different in the sense that it measures the average of price’s highest high and lowest low for the last 9 periods. Hosoda believed that using the average of price extremes over a given period of time was a better measure of equilibrium than merely using an average of the closing price. This study of the Tenkan Sen will provide us with our first foray into the key aspect of equilibrium that is so prevalent in the Ichimoku Kinko Hyo charting system. Chart 7 shows DR Horton (DHI) producing two bearish signals within a downtrend.

Clock Indicator for MT4

Another bullish crossover signal was triggered when the Conversion Line moved back above the Base Line in October. Sometimes it is hard to determine exact Conversion Line and Base Line levels on the price chart. For reference, these numbers are displayed in the upper left-hand corner of each Sharpchart. As of the January 8 close, the Conversion Line was 62.62 (blue) and the Base Line was 63.71 (red). The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a multi-functional tool that provides various insights into market dynamics.

The indicator consisting of five lines, each of them is calculated by its own formula. Some of them are Moving Average lines in essence, so they are calculated accordingly. Price retests the 12h cloud top and you’ll be able to increase your size for the rest of the daily E2E. https://1investing.in/ Price and the Tenkan-Sen are not in Equilibrium with the main trend and are forming a pattern that looks like a C together with the Kijun-Sen. This signal is active once price reclaims the Tenkan-Sen, and from there price is targeting the Kijun-Sen, also called Equilibrium.

Getting to Know the Ichimoku Chart

It is important to remember that bullish signals are reinforced when prices are above the cloud, and the cloud is green. Bearish signals are reinforced when prices are below the cloud, and the cloud is red. In other words, bullish signals are preferred when the bigger trend is up (prices above green cloud), while bearish signals are preferred when the bigger trend is down (prices are below red cloud). Signals counter to the existing trend are deemed weaker, such as short-term bullish signals within a long-term downtrend or short-term bearish signals within a long-term uptrend. For those that have been using the Ichimoku Kinko Hyo charting system for any length of time, utilizing the Chikou Span cross strategy should be like second nature. Because the Chikou Span cross is essentially the “chikou span confirmation” that savvy Ichimoku traders utilize to confirm chart sentiment before entering any trade.

ichimoku kinko hyo

On the one part, there is a fairly obvious message, on the other – the price is in the zone of uncertainty. Experienced traders believe that it is worth starting to trade, not forgetting about the features of the cloud. As soon as the price starts to approach its borders, the probability of a reversal movement increases as much as possible, so you will either need to be reinsured with stops or simply close the position. If we talk about reliable signals, then the strongest is the price out of Kumo. At this point, usually there is a powerful impulse, reacting to which the trader gets the opportunity to enter a new long trend at the very beginning. Seeing the breakout, you should open up after it, as quickly as possible, of course without forgetting the classical safety points.

This relationship is obvious when one looks at the current price on a live chart, but less so when looking at historical price action. In addition, while all Ichimoku Kinko Hyo strategies should be exercised with the larger Ichimoku picture in mind, this is particularly important with the Senkou span cross. Thus, determining the overall trend on higher time frames first and then taking only Senkou span signals that align with that trend on the lower timeframes is the best implementation of the Senkou span strategy. Price, the Conversion Line, and the Base Line are used to identify faster and more frequent signals.

The Ichimoku Kinko Hyo chart isolates higher probability trades in the forex market. Also called the equilibrium chart, it is new to the mainstream but has risen in popularity among novice and experienced traders. Known for its applications in futures and equities, the Ichimoku shows more data points, which provide a more reliable price action. Goichi Hosoda determined that the numbers 9, 26, and 52 are numbers that perfectly match the settings used in Ichimoku (why so, we wrote above). The space between the lines of Senkou Span is called the cloud (Kumo).

Price’s Relationship to the Ichimoku Kinko Hyo Cloud

The Ichimoku Kinko Hyo indicator wasn’t completed and ready to present to the Japanese public until 1969, when it quickly became the indicator of choice used in Japan’s trading rooms. In the Death Cross a short Tenkan-sen crosses a long Kijun-sen downward. Ichimoku Kinko Hyo Technical Indicator is predefined to characterize the market Trend, Support and Resistance Levels, and to generate signals of buying and selling. A strong bullish Kumo Breakout occurs when price breaks out of the cloud to the upside whilst the future cloud is bullish and when the Chikou Span is above the cloud, and vice-versa for a strong bearish Kumo Breakout. In this case, the future cloud is bullish, meaning that the Senkou-Span A is higher than the Senkou-Span B. Price is trending above the cloud and above both the Kijun-Sen and the Tenkan-Sen. The Tenkan-Sen is above the Kijun-Sen and both lines are also above the cloud.

  • Default settings are 9 for the Conversion Line, 26 for the Base Line and 52 for the Leading Span B. The Leading Span A is based on the Conversion Line and Base Line.
  • In the case of a breakthrough of the support or resistance level, the price may gain momentum, which will direct it to the next support or resistance.
  • Sometimes it is hard to determine exact Conversion Line and Base Line levels on the price chart.
  • To ensure the flat top/bottom is not going to attract price back to the Kumo, it is always advisable to look for another Ichimoku structure to “anchor” your entry to just above/below the Kumo breakout.

After meeting the Ichimoku Kinko Hyo Cloud boundary and making a meager 50 pips, the pair drops like a stone nearly 500 pips. Bullish signals are reinforced when prices are above the cloud, and the cloud is green, while bearish signals are reinforced when prices are below the cloud and the cloud is red. The cloud changed from green to red when the Leading Span A (green) moved below the Leading Span B (red) in July. The cloud break represented the first trend change signal, while the color change represented the second trend change signal. If the Chikou Span or the green line crosses the price in the bottom-up direction, that is a buy signal. If the green line crosses the price from the top-down, that is a sell signal.


Use only one additional indicator, and it’s better if it’s placed below the chart. Oscillators are always located in the window below the chart, so you’ll definitely see signals. It might be difficult to understand the meaning of each line, which is why the most common mistake among traders is misinterpreting lines. It’s not easy to remember their names and functions, so traders get the wrong signals. All you need to do is select which colours you want to use and set a colour for each line.

  • This rids traders of searching some important information on the chart.
  • For the highest probability of success, the trader will also look for the Chikou Span itself to be free of the Kumo as the Chikou Span can often interact with the Kumo much like the price curve.
  • A TK Cross is the general term when the Tenkan-Sen crosses the Kijun-Sen.
  • Some of them are Moving Average lines in essence, so they are calculated accordingly.

Thus, the stop-loss for a Kumo breakout trade must be placed on the opposite side of the Kumo that the trade is transpiring on, a few pips/points away from the Kumo boundary. If price does manage to reach the point of the stop-loss, the trader can be relatively assured that a major trend change has taken place. Kumo breakout traders also make good use of the leading Kumo’s sentiment before committing to a trade.

A weak Kijun Sen cross Buy signal takes place when a bullish cross happens below the Kumo. A weak Kijun Sen cross sell signal takes place when a bearish cross happens above the Kumo. It must be understood by any who wishes to use the power of Ichimoku Kinko Hyo that it is, first and foremost, a trend trading system. It is further assumed that the trader wielding Ichimoku does so with a solid understanding of the basic tenets of trend trading. This is a key assumption, since knowledge of how to trade the trend is critical to long-term success with Ichimoku. Given the dynamics of the Kijun Sen outlined above, traders can use the Kijun Sen effectively as both a low-risk point of entry as well as a solid stop loss.

As for the Chikou Span, when the green line crosses the price in the bottom-up direction it acts as a ‘buy’ signal, but when the line crosses the price from the top-down it’s a signal to sell. The Ichimoku system was the brainchild of Japanese journalist Goichi Hosoda, known tri party agreement meaning to his friends as Ichimoku Sanjin, which translates as “what a man in the mountain sees”. As a reporter on the old rice trading markets just before the Second World War, he noted how the commodity’s price followed certain rules and reacted around certain areas of the chart.

This virtually excludes the appearance of spontaneously opened positions which usually have no perspectives and lead to losses. Here one has nothing to do but to watch the market and wait patiently for a signal to sell or to buy, and after the transaction – to look for an exit point. Unfortunately, in most cases beginners are not ready to follow the market and do not like it. They prefer reversing the market, which is hardly efficient in the long term and may even lead to serious losses.

The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. Incidentally, notice that 9 and 26 are the same periods used to calculate the MACD. What the trader will want to do here is use the crossover to initiate the position–similar to a moving average crossover. Looking at our example in Figure 1, we see a clear crossover of the Tenkan Sen (yellow line) and the Kijun Sen (orange line). This decline simply means that near-term prices are dipping below the longer-term price trend, signaling a downtrend or a move lower.

In addition to providing us with another piece of the “trend puzzle”, the lagging span also provides clear levels of support and resistance, given that it represents prior closing prices. Ichimoku practitioners can thus draw horizontal lines across the points created by the lagging line to see these key levels and utilize them in their technical analysis and trading decisions (see Figure below). Ichimoku Kinko Hyo is a unique instrument that let traders carry out a full technical analysis of the market without additional indicators. It helps define the trend on the market and find the closest support and resistance lines. Working with the indicator, traders have to follow serious rules that exclude intuitive positions.