From IchiWiki - The Definitive Reference to the Ichimoku Kinko Hyo Charting System
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1 Quick Description 2 History 3 Equilibrium At a Glance 4 Ichimoku Components 5 Ichimoku Settings
Ichimoku Kinko Hyo is a purpose-built trend trading charting system that has been successfully used in nearly every tradeable market. It is unique in manyways, but its primary strength is its use of multiple data points to give the trader a deeper, more comprehensive view into 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 lowprobability trading setups from those of higher probability.
The charting system of Ichimoku Kinko Hyo wasdeveloped by a Japanese newspaper man named Goichi Hosoda. He began developing this system before World War II with the help of numerous students that he hired to run through the optimum formulas and scenarios - analogous to how we would use computer simulated backtesting today to test a trading system. The system itself was finally released to the public in 1968, after more than twenty years oftesting, when Mr. Hosoda published his book which included the final version of the system. Ichimoku Kinko Hyo has been used extensively in Asian trading rooms since Hosoda published his book and has been used successfully to trade currencies, commodities, futures, and stocks. Even with such wild popularity in Asia, Ichimoku did not make its appearance in the West until the 1990s and then, due to theutter lack of information in English on how to use it, it was mostly relegated to the category of another "exotic" indicator by the general trading public. Only now, in the early 21st century, are western traders really beginning to understand the power of this charting system.
Equilibrium at a Glance
The name Ichimoku Kinko Hyo, which translates to "Equilibrium chart at a glance" aptlydescribes the system and how it is to be used, as described below:
While Ichimoku utilizes five separate lines or components, they are not to be used individually, in isolation, when making trading decisions, but rather used together to form an integrated "whole" picture of price action that can be gleaned "at a glance". Thus, a simple look at an Ichimoku chart should provide the Ichimokupractitioner with a nearly immediate understanding of sentiment, momentum and strength of trend. Price action is constantly measured or gauged from the perspective of whether it is in relative equilibrium or disequilibrium. Hosoda strongly believed that the market was a direct reflection of human group dynamics or behavior. He felt that human behavior could be described in terms of a constantcyclical movement both away from and back towards equilibrium in their lives and interactions. Each of the five components that make up Ichimoku provide its own reflection of this equilibrium or balance.
The Ichimoku chart is composed of five (5) separate indicator lines. These lines work together to form the complete "Ichimoku picture". A summary of how each line iscalculated is outlined below:
TENKAN SEN ("turning line") (HIGHEST HIGH + LOWEST LOW)/2 Learn more KIJUN SEN ("standard line") (HIGHEST HIGH + LOWEST LOW)/2 Learn more CHIKOU SPAN ("lagging line") CURRENT CLOSING PRICE time-shifted backwards (into the past) 26 periods Learn more SENKOU SPAN A ("1st leading line") (TENKAN SEN + KIJUN SEN)/2 time-shifted forwards (into the future) 26 periods Learn moreSENKOU SPAN B ("2nd leading line") (HIGHEST HIGH + LOWEST LOW)/2 for the past 52 periods time-shifted forwards (into the future) 26 periods Learn more for the past 26 periods for the past 9 periods
The senkou span A and B deserve special mention here as they, together, form the Ichimoku "kumo" or cloud. We cover the kumo and its myriad functions in more detail in the section "The kumo"....