The Ichimoku Kinko Hiyo Indicator

The Ichimoku Kinko Hayo was developed by Goichi Hosoda, a Japanese journalist writing under the pseudonym Ichimoku Sangen. This charting technique was developed before World War II and was offered to the public with the publication of his book in 1969.

Meaning and Purpose

The name Ichimoku Kinko Hiyo translates roughly to "a glance at the table of equilibrium." Its versatility allows chartists to define supports and resistances, identify trend direction, reflect momentum, and provide trading signals.

  • Ichimoku: A glance or one look.
  • Kinko Hiyo: The table of equilibrium or balance table.

Key Components and Calculations

The calculation of the five individual plots is based on key time periods which traditionally reflected the six-day trading week prevalent in the 1930s. Some traders may adjust these defaults to reflect the modern five-day trading week.

Time Period Defaults (Original vs. Adjusted)

  • 9 periods (1.5 weeks) could be adjusted to 7.5 periods.
  • 26 periods (1 month) could be adjusted to 22 periods.
  • 52 periods (2 months) could be adjusted to 44 periods.

The Five Ichimoku Plots

The indicator consists of five different plots, often referred to by their default calculation periods:

  1. Tenkan Sen (Conversion Line)
    • Default Period: 9 periods.
    • Calculation: (Highest High + Lowest Low) / 2 for the last nine periods.
    • Role: Closest to the price, reflects short-term momentum.
  2. Kijun Sen (Base Line)
    • Default Period: 26 periods.
    • Calculation: (Highest High + Lowest Low) / 2 for the last 26 periods.
    • Role: Reflects medium-term momentum and acts as a key support/resistance.
  3. Kumo (The Cloud) Components
    • Senkou Span A (Leading Span A): Calculated by (Tenkan Sen + Kijun Sen) / 2. This line forms the faster cloud boundary and is plotted 26 periods in the future.
    • Senkou Span B (Leading Span B): Calculated by (Highest High + Lowest Low) / 2 for the last 52 periods. This line forms the slower cloud boundary and is plotted 26 periods in the future.
  4. Chikou Span (Lagging Span)
    • Default Period: 26 periods.
    • Calculation: Simply the current closing price.
    • Role: Plotted 26 periods in the past, used to confirm the trend by comparing the current price to historical prices.

Interpreting Signals and Trend Direction

Kumo (Cloud) Interpretation

The Kumo, formed by the difference between Senkou Span A and Senkou Span B, provides predictive support/resistance and defines the main trend direction.

Trend Based on Price Position Relative to Kumo:

  • Uptrend: Prices are above the cloud.
  • Downtrend: Prices are below the cloud.
  • Neutral Trend: Prices are inside the cloud.

Trend Strength Based on Cloud Color:

The color of the cloud indicates trend momentum and strength:

  • Green Cloud: Senkou Span A (faster boundary) is above Senkou Span B. This indicates a strengthening uptrend.
  • Red Cloud: Senkou Span A is below Senkou Span B. This indicates an accelerating downtrend.

Tenkan Sen and Kijun Sen Signals

Crossovers between these two lines generate primary buy or sell signals:

  • Bullish Signal: Generated when the Tenkan Sen crosses above the Kijun Sen.
  • Bearish Signal: Generated when the Tenkan Sen crosses below the Kijun Sen.

Both lines can also be used individually as dynamic support and resistance levels.

Chikou Span Signals

The Chikou Span is used to confirm the existing trend or generate trading signals based on its relationship to the current price action (plotted 26 periods back):

  • Bullish Signal/Confirmation: The Chikou Span is above the past prices.
  • Bearish Signal/Confirmation: The Chikou Span is below the past prices.

Summary of Ichimoku Usage

All five plots of the Ichimoku Kinko Heyo serve as potential supports and resistances. Signals are derived from movement relative to the cloud, the color of the cloud, and crossovers between the component lines.

  1. Overall Direction: Defined by price movement above (bullish) or below (bearish) the cloud.
  2. Trend Strength: Indicated by the cloud color (green for strengthening up, red for strengthening down).
  3. Crossover Signals: Generated when the Tenkan Sen crosses the Kijun Sen.
  4. Confirmation Signals: Generated when the Chikou Span crosses above or below the price.

Detailed Summary

The Ichimoku Kinko Hiyo is a comprehensive technical charting indicator developed before WWII by Japanese journalist Goichi Hosoda (pseudonym Ichimoku Sangen), and published in 1969. Translating roughly to "a glance at the table of equilibrium," its purpose is to identify support and resistance, determine trend direction and momentum, and generate trading signals. The indicator consists of five main plots—the Tenkan Sen (Conversion Line), Kijun Sen (Base Line), Kumo (Cloud, formed by Senkou Span A and B), and the Chikou Span (Lagging Span)—all based on moving averages of high/low midpoint calculations across specific time periods (traditionally 9, 26, and 52). Interpretation relies on price position relative to the predictive Kumo (uptrend above, downtrend below), the cloud's color (green for strengthening up, red for strengthening down), and crossovers between the Tenkan Sen and Kijun Sen for primary signals, confirmed by the Chikou Span.

Key Takeaways

  • The Ichimoku Kinko Hiyo was developed by Goichi Hosoda (Ichimoku Sangen), a Japanese journalist, and released publicly in 1969.
  • Its name means "a glance at the table of equilibrium" and it is used to define support/resistance, trend direction, momentum, and trading signals.
  • The indicator uses five plots derived from calculations based on specific historical time periods (defaults: 9, 26, 52 periods).
  • The five plots are: Tenkan Sen (9 periods, short-term momentum), Kijun Sen (26 periods, medium-term S/R), Kumo (Cloud), and Chikou Span (Lagging Span).
  • The Kumo (Cloud) is formed by two leading spans (Senkou Span A and B) plotted 26 periods into the future, providing predictive support/resistance.
  • Trend direction is determined by price relative to the Kumo: above the cloud indicates an uptrend; below indicates a downtrend.
  • Cloud color indicates trend strength: Green Cloud (Senkou A above Senkou B) suggests a strengthening uptrend; Red Cloud suggests an accelerating downtrend.
  • A primary bullish signal occurs when the Tenkan Sen crosses above the Kijun Sen; a bearish signal is the reverse cross.
  • The Chikou Span (current closing price plotted 26 periods back) confirms the trend: above past prices is bullish confirmation, below is bearish confirmation.