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Ichimoku
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Ichimoku

created Paweł Mosionek24 February 2014

The main idea of ​​Ichimoku is to follow the trend and catch longer movements from the market in relation to the given interval at which they work.

What is Ichimoku?

Ichimoku is both an indicator and an investment strategy, having its roots before you start World War II. Japanese journalist Goichi Hosoda spent 28 years developing his work. Ichimoku Sanjin - it is from his pseudonym under which he created the name of this increasingly more strategy. The foundations are based on five moving averages. In 1996, this Japanese technique underwent a "facelift" by an employee of Hidenobu Sasaki from the Nikko Citigroup Securities brokerage house, who published the position entitled "Ichimoku Kinko Studies".

Construction of Ichimoku

The strategy is based on five moving averages:

  • Tenkan-sen,
  • Kijun-sen,
  • Chikou span,
  • Senkou Span A,
  • Senkou Span B.

Tenkan-sen - is based on the highest high and lowest low of the last 7 or 9 candles. It is usually closest to the price of the instrument because of all the averages it is based on the lowest period. It can act as resistance or support, especially in strong trends.

Kijun-sen - is calculated on the basis of the highest peak and lowest low of the last 22 or 26 candles. It sets more reliable levels of support or resistance compared to Tenkan-sen, especially in the medium term. The support or resistance is stronger the longer the average is flat.

Chikou span - is a line based on the closing price, but shifted left by 22 or 26 candles. It does not generate market entry signals, but provides information about the type of trend that is in place and sets support and resistance levels.

Senkou Span A - is calculated from the average value of Tenkan-sen and Kijun-sen from the last 22 or 26 candles. Additionally, it is shifted by 26 candles to the right, hence it is a leading indicator. Its main function is to plot supports and resistances.

Senkou Span B - is based on the highest high and lowest low of the last 44 or 52 candles and is therefore the longest period average of all listed. Just like Senkou Span A, it is shifted to the right by 22 or 26 candles and it delimits a support and resistance zone.

Cloud (kumo) - the cloud is the plotted area between Senkou Span A and Senkou Span B. When the chart shows an uptrend, the price of the instrument is above the cloud, the upper limit of the cloud is intra-day support, and the lower limit is support for closing prices. Similarly, in a downtrend - the price is under the cloud, the lower edge is the intra-day resistance, and the upper edge is the closing resistance. The wider the cloud, the stronger the support (uptrend) or resistance (downtrend).

Ichimoku

Determining the trend

  1. Uptrend - A situation where the price of an instrument is above the Kumo cloud.
  2. A downward trend, on the other hand, is a situation where the price of the instrument is under the Kumo cloud.
  3. Side trend - a situation where the price of the instrument is in the Kumo cloud.

Ichimoku: Determining the trend

Support and resistance

Rising trend:

  • The upper edge of the Kumo cloud - the first level of support,
  • The lower edge of the Kumo cloud - the second level of support.

Downward trend:

  • The upper edge of the Kumo cloud - the first level of support,
  • The lower edge of the Kumo cloud - the second level of support.

Side trend:

  • While the price is in the Kumo cloud, breaking the course through the top edge is the buy signal and the breaking through the bottom edge of the sales signal.

Ichimoku: Support and Resistance
Buy signals

First degree:

  • When the course breaks through Tenkan-Sen from below,
  • When the rate breaks Kijun-Sen from below,
  • When the course breaks through the bottom of the Kumo Cloud from below.

Second degree:

  • Tenkan-Sen pierces Kijun-Sen from the bottom,
  • The course raises the upper edge of the Kumo cloud from the bottom.

Strength of buy signals of the second degree:

  • Strong - Tenkan-Sen crosses Kijun-Sen above the Kumo cloud,
  • Moderate - Tenkan-Sen crosses Kijun-Sen in the Kumo cloud,
  • Weak - Tenkan-Sen crosses Kijun-Sen under the Kumo Cloud.

According to the theory, the strongest buy signal is the intersection of Tenkan-Sen from Kijun-Sen, while at the same time it is above the Kumo cloud.

Ichimoku: Buy Signals
Sales signals

First degree:

  • When the course breaks through Tenkan-Sen from above,
  • When the course breaks through Kijun-Sen from above,
  • When the course breaks through the top of the Kumo Cloud from above.

Second degree:

  • Tenkan-Sen pierce Kijun-Sen from the top,
  • The course breaks the top edge of the Kumo cloud from the top.

The strength of second-order sales signals:

  • Strong - Tenkan-Sen crosses Kijun-Sen under the Kumo cloud,
  • Moderate - Tenkan-Sen crosses Kijun-Sen in the Kumo cloud,
  • Weak - Tenkan-Sen crosses Kijun-Sen above the Kumo Cloud.

Sales signals

Examples of input signals according to different techniques

Breaking the price from the cloud

Breaking the price from the cloud
Intersection of Tenkan-Sen and Kijun-Sen

Intersection of Tenkan-Sen and Kijun-Sen

See also the publications of Grzegorz Moskvy

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.