ICHIMOKU KINKO HYO
Doug Schaff
FX-Strategy
| Characteristic: | Support & Resistance Indicator | |||
| Parameter Defaults: | ST Period | 26 | controls the measurement period for the Kijun Sen | |
| TL Period | 9 | controls the measurement period for the Tenkan Sen | ||
| DL Period | 52 | controls the measurement period for the Senkou Span | ||
| Plots: | ST | Kijun Sen | (Base Line) | |
| TL | Tenkan Sen | (Conversion Line) | ||
| DL | Chikou Span | (Lagging Span) | ||
| Span 1 | Senkou Span | (Leading Span 1) | ||
| S2 | Senkou Span 2 | (Leading Span2) | ||
The term "Ichimoku" can be translated from Japanese as "instant view" or "one glance", "Kinko" is the equivalent of "equilibrium" or "balance" and "Hyo" means "chart". Hence the full name "Ichimoku Kinko Hyo" actually means "one glance cloud chart" or more appropriately "Instant view of the balance chart". Goichi Hosoda developed Ichimoku Kinko Hyo in the early Showa era (1926-1989) and copyright is owned by Kabushiki Kaisha Hendou Souken. However, Hosoda, a Japanese newspaper writer, only published his findings in 1969 and from that point forward Ichimoku Kinko Hyo has become a permanent feature in Japanese trading rooms.
The series of lines are very similar to moving averages and are based upon high and low prices. The two Senkou Span (leading) lines are pushed forward in time to represent past support and resistance - similar in concept to the idea that once established, support will continue to provide support until broken when it becomes resistance. The area between the two Senkou Span lines is shaded to make it look like a cloud. This "cloud" not only defines the trend but acts as support and resistance for price. A very basic precept is: if price is above the cloud then the trend is higher and vice versa.
However, the relative positions of the Kijun Sen and Tenkan Sen are also important. ("Sen" is the same word that is used in "Shinkansen" - the Japanese Bullet train - having the meaning "line") Broadly, a crossing of the Tenkan Sen above the Kijun Sen is bullish and a crossing of the Tenkan Sen below the Kijun Sen is bearish.
To the positions of price against the cloud and the crossing of the Tenkan Sen and Kijun Sen the relative position of today's price against that of 26 periods prior determines the strength of the signals. The Chikou Span (lagging span) is today's price moved back 26 periods. If the Chikou Span (today's price) is below that of 26 periods ago and a sell signal occurs, it is a stronger signal than had it been above the close of 26 periods ago. Equally the opposite is true for buy signals.
The chart above is of the daily USDCHF market during the long US Dollar decline starting in March 2002. The Tenkan Sen crossed below the Kijun Sen while price was still above the cloud but with the Chikou Span being below price of 26 periods ago. It was a weak sell signal. However, subsequently price declined below the cloud and then rallied into the middle of the cloud which provided resistance. The following move lower again caused both Tenkan and Kijun Sen to move lower with the Chikou Span being well below the price of 26 periods ago. This added to the bearishness of price.
Later, when the Tenkan Sen crossed above the Kijun Sen the Chikou Span was not clearly above the price of 26 periods prior and provided only a weak buy signal. Indeed, price moved sideways for some time.
