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MainPageFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

WelcometoIchiWiki,thedefinitivereferencetotheIchimokuKinkoHyochartingsystem!

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"AnyInstrument,AnyTimeframe,&NoExpiration"

Contents

IntroductiontoIchimokuQuickDescriptionHistoryEquilibrium"AtaGlance"IchimokuComponentsIchimokuSettings

TheFiveLinesofIchimokuTheTenkanSenTheKijunSenTheChikouSpan

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TheSenkouSpanATheSenkouSpanB

TheKumoTheBasicsABetterMeasureofSupportandResistancePrice'sRelationshiptotheKumoKumoWidthKumoSentimentFlatTop/BottomKumos

TrendTradingIntroductionIchimokuKinkoHyoandTrendTrading

IchimokuTradingStrategiesREADTHISFIRST!TenkanSen/KijunSenCrossKijunSenCrossKumoBreakoutSenkouSpanCrossChikouSpanCross

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04/06/2015 IntroductionIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

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IntroductionFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

Contents

1QuickDescription2History3EquilibriumAtaGlance4IchimokuComponents5IchimokuSettings

QuickDescription

IchimokuKinkoHyoisapurposebuilttrendtradingchartingsystemthathasbeensuccessfullyusedinnearlyeverytradeablemarket.Itisuniqueinmanyways,butitsprimarystrengthisitsuseofmultipledatapointstogivethetraderadeeper,morecomprehensiveviewintopriceaction.Thisdeeperview,andthefactthatIchimokuisaveryvisualsystem,enablesthetradertoquicklydiscernandfilter"ataglance"thelowprobabilitytradingsetupsfromthoseofhigherprobability.

History

ThechartingsystemofIchimokuKinkoHyowasdevelopedbyaJapanesenewspapermannamedGoichiHosoda.HebegandevelopingthissystembeforeWorldWarIIwiththehelpofnumerousstudentsthathehiredtorunthroughtheoptimumformulasandscenariosanalogoustohowwewouldusecomputersimulatedbacktestingtodaytotestatradingsystem.Thesystemitselfwasfinallyreleasedtothepublicin1968,aftermorethantwentyyearsoftesting,whenMr.Hosodapublishedhisbookwhichincludedthefinalversionofthesystem.



IchimokuKinkoHyohasbeenusedextensivelyinAsiantradingroomssinceHosodapublishedhisbookandhasbeenusedsuccessfullytotradecurrencies,commodities,futures,andstocks.EvenwithsuchwildpopularityinAsia,IchimokudidnotmakeitsappearanceintheWestuntilthe1990sandthen,duetotheutterlackofinformationinEnglishonhowtouseit,itwasmostlyrelegatedtothecategoryofanother"exotic"indicatorbythegeneraltradingpublic.Onlynow,intheearly21stcentury,arewesterntradersreallybeginningtounderstandthepowerofthischartingsystem.

EquilibriumAtaGlance

ThenameIchimokuKinkoHyo,whichtranslatesto"Equilibriumchartataglance"aptlydescribesthesystemandhowitistobeused,asdescribedbelow:

WhileIchimokuutilizesfiveseparatelinesorcomponents,theyarenottobeusedindividually,inisolation,whenmakingtradingdecisions,butratherusedtogethertoformanintegrated"whole"pictureofpriceactionthatcanbegleaned"ataglance".Thus,asimplelookatanIchimokuchartshouldprovidetheIchimokupractitionerwithanearlyimmediateunderstandingofsentiment,momentumandstrengthoftrend.

Priceactionisconstantlymeasuredorgaugedfromtheperspectiveofwhetheritisinrelativeequilibriumordisequilibrium.Hosodastronglybelievedthatthemarketwasadirectreflectionofhumangroupdynamicsorbehavior.Hefeltthathumanbehaviorcouldbedescribedintermsofaconstantcyclicalmovementbothawayfromandbacktowardsequilibriumintheirlivesandinteractions.EachofthefivecomponentsthatmakeupIchimokuprovideitsownreflectionofthisequilibriumorbalance.

IchimokuComponents

TheIchimokuchartiscomposedoffive(5)separateindicatorlines.Theselinesworktogethertoformthecomplete"Ichimokupicture".Asummaryofhoweachlineiscalculatedisoutlinedbelow:

TENKANSEN("turningline")

(HIGHESTHIGH+LOWESTLOW)/2forthepast9periods

Learnmore

KIJUNSEN("standardline")(HIGHESTHIGH+LOWESTLOW)/2forthepast26periods

Learnmore

CHIKOUSPAN("laggingline")CURRENTCLOSINGPRICEtimeshiftedbackwards(intothepast)26periods



Learnmore

SENKOUSPANA("1stleadingline")

(TENKANSEN+KIJUNSEN)/2timeshiftedforwards(intothefuture)26periods

Learnmore

SENKOUSPANB("2ndleadingline")

(HIGHESTHIGH+LOWESTLOW)/2forthepast52periodstimeshiftedforwards(intothefuture)26periods

Learnmore

ThesenkouspanAandBdeservespecialmentionhereasthey,together,formtheIchimoku"kumo"orcloud.Wecoverthekumoanditsmyriadfunctionsinmoredetailinthesection"Thekumo".

Thechartbelow(FIGUREI)providesavisualrepresentationofeachofthesefivecomponents:



FIGUREIIchimokuComponents

IchimokuSettings

AsyoucanseeintheIchimokuComponentssectionabove,eachlinecalculationhasoneandsometimestwodifferentsettingsbasedonthenumberofperiodsconsidered.Aftermuchresearchandbacktesting,GoichiHosodafinallydeterminedthatthesettingsof9,26and52weretheidealsettingsforobtainingoptimumresultswithIchimoku.Hederivedthenumber26fromwhatwasthenthestandardJapanesebusinessmonth(whichincludedSaturdays).Thenumber9representsaweekandahalfandthenumber52representstwomonths.

ThestandardsettingsforanIchimokuKinkoHyochartare9,26,52.

Thereissomedebatearoundwhetherornotthesesettingsof9,26,52arestillvalidgiventhatthestandardworkmonthhereintheWestdoesnotinclude



Saturdays.Inaddition,innoncentralizedmarketsthatdonotkeepstandardbusinesshoursliketheForex(whichtradesaroundtheclock)somehavepositedthattheremaybemoreappropriatesettings.Nevertheless,weatBoersma&Hunt,aswellasmostotherprofessionalIchimokutraders,agreethatthestandardsettingsof9,26,52workextremelywellanddonotneedtobealtered.

Theargumentcouldbemadethat,sinceIchimokuKinkoHyofunctionsasafinelytuned,integratedwhole,changingthesettingstosomethingotherthanthestandardcouldthrowthesystemoutofbalanceandintroduceinvalidsignals.

Thus,forthepurposesofdescribingIchimokuKinkoHyowithinthiswiki,itwillbeassumedthatthestandardsettingsarebeingused.

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IchimokucomponentsFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

Contents

1TenkanSen2KijunSen3ChikouSpan4SenkouSpanA5SenkouSpanB

TenkanSen

Thetenkansen,aswehavealreadymentionedinourIntroductionsection,iscalculatedinthefollowingmanner:

TENKANSEN("turningline")


Whilemanymaycomparethetenkansentoasimple9periodsimplemovingaverage(SMA),itisquitedifferentinthesensethatitmeasurestheaverageofprice'shighesthighandlowestlowforthelast9periods.Hosodabelievedthatusingtheaverageofpriceextremesoveragivenperiodoftimewasabettermeasureofequilibriumthanmerelyusinganaverageoftheclosingprice.ThisstudyofthetenkansenwillprovideuswithourfirstforayintothekeyaspectofequilibriumthatissoprevalentintheIchimokuKinkoHyochartingsystem.

ConsiderthechartinFigureIbelow:



FIGUREITenkanSenvs.9PeriodSMA

Ascanbeseeninthechart,thetenkansenoftenexhibits"flattening"whereasthe9periodSMAdoesnot.Thisisduetothefactthatthetenkansenusestheaverageofthehighesthighandlowestlowratherthananaverageoftheclosingprice.Thus,duringperiodsofpriceranging,thetenkansenwillclearlyshowthemidpointoftherangeviaitsflataspect.

Whenthetenkansenisflat,itessentiallyindicatesatrendlessconditionoverthelast9periods.

Itcanalsobeseenhowthetenkansenprovidesamuchmoreaccuratelevelofpricesupportthandoesthe9periodSMA.Withonlyoneexception,price



actionstayedabovethetenkanseninthethreehighlightedareasofthechart,whilepricebrokebelowtheSMAnumeroustimes.Thisisduetothemoreconservativemannerinwhichthetenkanseniscalculated,whichmakesitlessreactivetosmallmovementsinprice.Onabearishchart,thetenkansenwilllikewiseactasalevelofresistance.

Theangleofthetenkansencanalsogiveusanideaoftherelativemomentumofpricemovementsoverthelast9periods.Asteeplyangledtenkansenwillindicateanearlyverticalpriceriseoverashortperiodoftimeorstrongmomentum,whereasaflattertenkansenwillindicatelowermomentumornomomentumoverthatsametimeperiod.

Thetenkansenandthekijunsenbothmeasuretheshortertermtrend.Ofthetwo,thetenkansenisthe"fastest"giventhatitmeasurestrendoverthepast9periodsasopposedtothekijunsen's26periods.Thus,giventheveryshorttermnatureofthetenkansen,itisnotasreliableanindicatoroftrendasmanyothercomponentsofIchimoku.Nevertheless,pricebreachingthetenkansencangiveanearlyindicationofatrendchange,though,likeallIchimokusignals,thisshouldbeconfirmedbytheotherIchimokucomponentsbeforemakinganytradingdecision.

Oneoftheprimaryusesofthetenkansenisvisavisitsrelationtothekijunsen.Ifthetenkansenisabovethekijunsen,thenthatisabullishsignal.Likewise,ifthetenkansenisbelowthekijunsen,thenthatisbearish.Thecrossoverofthesetwolinesisactuallyatradingsignalonitsown,attopicthatiscoveredinmoredetailinourIchimokuTradingStrategiessection.

Discussthis!(http://www.boersmaandhunt.com/kumotrader_forum/index.php?board=9.0)

KijunSen

Thekijunseniscalculatedinthefollowingmanner:

KIJUNSEN("standardline")


Thekijunsenisoneofthetrue"workhorses"ofIchimokuKinkoHyoandithasmyriadapplications.Likeitsbrother,thetenkansen,thekijunsenmeasurestheaverageofprice'shighesthighandlowestlow,thoughitdoessooveralongertimeframeof26periodsasopposedtothetenkansen's9periods.Thetenkansenthusprovidesuswithalltheinformationthetenkansendoes,justonalongertimeframe.

Duetothelongertimeperioditmeasures,thekijunsenisamorereliableindicatorofshorttermpricesentiment,strengthandequilibriumthanthetenkansen.Ifpricehasbeenranging,thenthekijunsenwillreflecttheverticalmidpointofthatrange(priceequilibrium)viaitsflataspect.Oncepriceexceedseitherthelasthighesthighorlowestlowwithinthelast26periods,however,thekijunsenwillreflectthatbyeitheranglingupordown,respectively.Thus,shorttermtrendcanbemeasuredbythedirectionofthekijunsen.Inaddition,therelativeangleofthekijunsenwillindicatethestrengthormomentumofthetrend.

Priceequilibriumisexpressedevenmoreaccuratelyinthekijunsenthaninthetenkansen,giventhelongerperiodoftimeitconsiders.Thus,thekijunsencanberelieduponasasignificantlevelofpricesupportandresistance(seehighlightedareasinFigureIIbelow).



FIGUREIIKijunSenSupport

Pricetendstomovealternatelyawayfromandbacktowardthekijunseninacyclicalfashionduetothekijunsen'sstrongexpressionofequilibriumorstasis.Thus,whenpricemomentumisextremeandpricemovesrapidlyupordownoverashortperiodoftime,acertain"rubberband"effectcanbeobservedonpricebythekijunsen,attractingpricebacktowardsitselfandbringingitbacktoequilibrium.Ananalogycouldbemadebetweenhowpriceinteractswiththekijunsenandhowelectricityalwaysseekstoreturntogroundorzeropotential.The"ground"inthiscaseisthekijunsenandpricewillalwaysseektoreturntothatlevel.Thisphenomenonisparticularlyevidentwhenthekijunsenisflatortrendless,ascanbeseeninFigureIIIbelow:



FIGUREIIIKijunSen"RubberBand"Effect

Giventhedynamicsofthekijunsenoutlinedabove,traderscanusethekijunseneffectivelyasbothalowriskpointofentryaswellasasolidstoploss.Thesetwotacticsareemployedextensivelyinboththekijunsencrossaswellasthetenkansen/kijunsencrossstrategieswhicharecoveredingreaterdetailinourIchimokuTradingStrategiessection.


ChikouSpan

Thechikouspaniscalculatedinthefollowingmanner:



CHIKOUSPAN("laggingline")CURRENTCLOSINGPRICEtimeshiftedbackwards(intothepast)26periods

ThechikouspanrepresentsoneofIchimoku'smostuniquefeaturesthatoftimeshiftingcertainlinesbackwardsorforwardsinordertogainaclearerperspectiveofpriceaction.Inthechikouspan'scase,thecurrentclosingpriceistimeshiftedbackwardsby26periods.Whiletherationalebehindthismayatfirstappearconfusing,itbecomesveryclearonceweconsiderthatitallowsustoquicklyseehowtoday'spriceactioncomparestothepriceactionof26periodsago,whichcanhelpdeterminetrenddirection.

Ifthecurrentcloseprice(asdepictedbythechikouspan)islowerthanthepriceof26periodsago,thatwouldindicatethatthereisapotentialformorebearishpriceactiontocome,sincepricetendstofollowtrends.Conversely,ifthecurrentclosingpriceisabovethepriceof26periodsago,thatwouldthenindicatethepossibilityformorebullishpriceactiontofollow.

ConsiderthechartsinFiguresIVandVbelow:



FIGUREIVChikouSpaninBullishConfiguration



FIGUREVChikouSpaninBearishConfiguration

Inadditiontoprovidinguswithanotherpieceofthe"trendpuzzle",thechikouspanalsoprovidesclearlevelsofsupportandresistance,giventhatitrepresentspriorclosingprices.Ichimokupractitionerscanthusdrawhorizontallinesacrossthepointscreatedbythechikouspantoseethesekeylevelsandutilizethemintheiranalysisandtradingdecisions(seeFigureVIbelow).



FIGUREVIChikouSpanSupportandResistanceLevels


SenkouSpanA

ThesenkouspanAiscalculatedinthefollowingmanner:

SENKOUSPANA("1stleadingline")



(TENKANSEN+KIJUNSEN)/2timeshiftedforwards(intothefuture)26periods

ThesenkouspanAisbestknownforitspart,alongwiththesenkouspanBline,informingthekumo,or"Ichimokucloud"thatisthefoundationoftheIchimokuKinkoHyochartingsystem.ThesenkouspanAisanotheroneofthetimeshiftedlinesthatareuniquetoIchimoku.Inthiscase,itisshiftedforwardsby26periods.Sinceitrepresentstheaverageofthetenkansenandkijunsen,thesenkouspanAisitselfameasureofequilibrium.GoichiHosodaknewwellthatpricetendstorespectpriorsupportandresistancelevels,sobytimeshiftingthislineforwardby26periodsheallowedtheIchimokupractitionertoquicklysee"ataglance"wheresupportandresistancefrom26periodsago(1monthagoonaDailychart)residecomparedwithcurrentpriceaction.

WhileitispossibletotradeoffofthesenkouspanAandBlinesontheirown,theirrealpowercomesintheircombineddynamicsinthekumo.


SenkouSpanB

ThesenkouspanBiscalculatedinthefollowingmanner:

SENKOUSPANB("2ndleadingline")

(HIGHESTHIGH+LOWESTLOW)/2forthepast52periodstimeshiftedforwards(intothefuture)26periods

ThesenkouspanBisbestknownforitspart,alongwiththesenkouspanAline,informingthekumo,or"Ichimokucloud"thatisthefoundationoftheIchimokuKinkoHyochartingsystem.Onitsown,thesenkouspanBlinerepresentsthelongesttermviewofequilibriumintheIchimokuKinkoHyosystem.Ratherthanconsideringonlythelast26periodsinitscalculationlikethesenkouspanA,thesenkouspanBmeasurestheaverageofthehighesthighandlowestlowforthepast52periods.Itthentakesthatmeasureandtimeshiftsitforwardby26periods,justlikethesenkouspanA.InHosoda'soriginalimplementation,thesenkouspanBwouldthusrepresentpriceequilibriumforthepriortwo(2)monthperiod,shiftedaheadofcurrentpricebyone(1)month.ThisconventionallowsIchimokupractitionerstoseethislongertermmeasureofequilibriumaheadofcurrentpriceaction,allowingthemtomakeinformedtradingdecisions.


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ThekumoFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

Contents

1TheBasics2ABetterMeasureofSupportandResistance3Price'sRelationshiptotheKumo4KumoDepth5KumoSentiment6FlatTop/BottomKumos

TheBasics

Thekumoisthevery"heartandsoul"oftheIchimokuKinkoHyochartingsystem.PerhapsthemostimmediatelyvisiblecomponentofIchimoku,thekumo("cloud"inJapanese)enablesonetoimmediatelydistinguishtheprevailing"bigpicture"trendandprice'srelationshiptothattrend.ThekumoisalsooneofthemostuniqueaspectsofIchimokuKinkoHyoasitprovidesadeep,multidimensionalviewofsupportandresistanceasopposedtojustasingle,unidimensionallevelasprovidedbyotherchartingsystems.Thismoreencompassingviewbetterrepresentsthewayinwhichthemarkettrulyfunctions,wheresupportandresistanceisnotmerelyasinglepointonachart,butratherareasthatexpandandcontractdependinguponmarketdynamics.

Thekumoitselfiscomprisedoftwolines,thesenkouspanAandthesenkouspanB.Eachofthesetwolinesprovidesitsownmeasureofequilibriumandtogethertheyformthecompleteviewoflongertermsupportandresistance.Betweenthesetwolinesliesthekumo"cloud"itself,whichisessentiallyaspaceof"notrend"wherepriceequilibriumcanmakepriceactionunpredictableandvolatile.

Tradingwithinthekumoisnotarecommendedpractice,asitstrendlessnaturecreatesahighdegreeofuncertainty.




ABetterMeasureofSupportandResistance

Asmentionedearlier,oneofthekumo'smostuniqueaspectsisitsabilitytoprovideamorereliableviewofsupportandresistancethanthatprovidedbyotherchartingsystems.RatherthanprovidingasinglelevelforS&R,thekumoexpandsandcontractswithhistoricalpriceactiontogiveamultidimensionalviewofsupportandresistance.Attimesthekumo'sabilitytoforecastsupportandresistanceisnothingshortofeerie,ascanbeseeninthechartbelow(FigureI)forUSD/CAD,wherepricerespectedthekumoboundariesonfiveseparateoccasionsovera30dayspan.

FIGUREIKumoSupport&Resistance



ThepowerofthekumobecomesevenmoreevidentwhenwecomparetraditionalsupportandresistancetheorytoIchimoku'smorecomprehensiveviewofsupportandresistanceviathekumo.

InthechartforFigureIIbelow,wehaveaddedatraditionaldowntrendline(A)andatraditionalresistancelineat1.1867(B).PricemanagedtobreakandcloseaboveboththedowntrendlineandthesingleresistancelevelatpointC.TraditionalS&RtraderswouldtakethisasastrongsignaltogoLongthispairatthatpoint.AsavvyIchimokupractitioner,ontheotherhand,wouldtakeonelookatprice'slocationjustbelowthebottomedgeofthekumoandwouldknowthatgoinglongatthatpointisextremelyriskygiventhestrongresistancepresentedbythekumo.Indeed,pricedidbounceoffofthekumoanddroppedapproximately250pips,whichwouldhavemostlikelyeradicatedthelongpositionofthetraditionalS&Rtrader.

Frustratedbyhislastlosingtrade,thetraditionalS&Rtraderspotsanotherchancetogolong,asheseespricebreakandcloseabovethepriorswinghighatpointD.TheIchimokutraderonlyseespricetradinginthemiddleofthekumo,whichheknowsisatrendlessareathatmakesforuncertainconditions.TheIchimokutraderisalsoawarethatthetopboundaryofthekumo,thesenkouspanB,iscloseathandandmaypresentconsiderableresistance,soheagainleavesthisdubiouslongtradetothetraditionalS&Rtraderasheawaitsabettertradeopportunity.Loandbehold,aftermeetingthekumoboundaryandmakingameager50pips,thepairdropslikeastonenearly500pips.

TheexamplegivenaboveillustrateshowIchimoku'smultidimensionalviewofsupportandresistancegivestheIchimokupractitioneran"insideview"ofS&Rthattraditionalchartistsdonothave.ThisenablestheIchimokupractitionertoselectonlythemostlegitimate,highrewardtradeopportunitiesandrejectthoseofdubiousqualityandreward.Thetraditionalchartistisleftto"hope"thattheirlatestbreakouttradedoesn'tturnintoaheadfakeashakystrategy,atbest.



FIGUREIITraditionalS&RTheoryvs.IchimokuKumo

Price'sRelationshiptotheKumo

Initsmostbasicinterpretation,whenpriceistradingabovethekumo,thatisabullishsignalsinceitindicatescurrentpriceishigherthanthehistoricalaverage.Likewise,ifpriceistradingbelowthekumo,thatindicatesthatbearishsentimentisstronger.Ifpriceistradingwithinthekumo,thatindicatesalossoftrendsincethespacebetweenthekumoboundariesistheultimateexpressionofequilibriumorstasis.TheinformedIchimokupractitionerwillnormallyfirstconsultprice'srelationshiptothekumoinordertogettheirinitialviewonachart'ssentiment.Fromatradingperspective,theIchimokuchartistwillalsoalwayswaitforpricetosituateitselfonthecorrectsideofthekumo(aboveforlongtradesandbelowforshorttrades)ontheirchosen



executiontimeframebeforeinitiatinganytrades.Ifpriceistradingwithinthekumo,thentheywillwaittomakeanytradesuntilitclosesabove/belowthekumo.

KumoDepth

AsyouwillseeuponstudyinganIchimokuchart,thekumo'sdepthorthicknesscanvarydrastically.Thedepthofthekumoisanindicationofmarketvolatility,withathickerkumoindicatinghigherhistoricalvolatilityandathinneroneindicatinglowervolatility.Tounderstandthisphenomenon,weneedtokeepinmindwhatthetwolinesthatmakeupthekumo,thesenkouspanAandthesenkouspanB,represent.ThesenkouspanAmeasurestheaverageofthetenkansenandkijunsen,soits"period"isbetween9and26periods,sincethosearethetwoperiodsthattheTenkanSenandKijunSenmeasure,respectively.ThesenkouspanBline,ontheotherhand,measurestheaverageofthehighesthighandlowestlowpriceforthepast52periods.Thus,theSenkouSpanAisessentiallythe"faster"lineofthetwo,sinceitmeasuresashorterperiodofequilibrium.

ConsiderthechartinFigureIIIbelow.Fortheprevious52periods,pricemadeatotalrangeof793pips(fromahighof1.2672toalowof1.1879)Themidpointoraverageofthisrangeis1.2275andthatisthusthevalueofthesenkouspanB.Thisvalueisthentimeshiftedforwardsby26periodssothatitstaysinfrontofcurrentpriceaction.ThesenkouspanAismorereactivetoshorttermpriceactionandthusisalreadyreflectingthemoveofpricebackupfromitslowof1.1879initspositiveangleandthegraduallythinningkumo.ThesenkouspanB,ontheotherhand,isactuallycontinuingtomovedownasthehighesthighofthelast52periodscontinuestolowerasitfollowsthepricecurve'smovedownfromtheoriginalhighof1.2672.Ifpricecontinuestorise,thesenkouspanAandBwillswitchplacesandthesenkouspanAwillcrossabovethesenkouspanBinasocalled"kumotwist".



FIGUREIIITheKumoanditsCalculations

Thekumoexpandsandcontractsbasedonmarketvolatility.Withgreatervolatility(i.e.wherethepriceofagivencurrencypairchangesdirectiondramaticallyoverashortperiodoftime),thefastersenkouspanAwilltravelalonginrelativeuniformitywiththepricecurvewhiletheslowersenkouspanBwilllagsignificantlygiventhatitrepresentstheaverageofthehighesthighandlowestlowoverthepast52periods.Thickerkumosarethuscreatedwhenvolatilityincreasesandthinneronesarecreatedwhenvolatilitydecreases.

Kumodepthorthicknessisafunctionofpricevolatility



Fromatradingperspective,thethickerthekumo,thegreatersupport/resistanceitwillprovide.ThisinformationcanbeusedbytheIchimokupractitionertofinetunetheirriskmanagementandtradingstrategy.Forexample,theymayconsiderincreasingtheirpositionsizeiftheirLongentryisjustaboveaparticularlythickkumo,asthechancesofpricebreakingbackbelowthekumoissignificantlylessthanifthekumowereverythin.Inaddition,iftheyarealreadyinapositionandpriceisapproachingaverywelldevelopedkumoonanothertimeframe,theymaychoosetoeithertakeprofitatthekumoboundaryoratleastreducetheirpositionsizetoaccountfortheriskassociatedwiththethickerkumo.

Ingeneral,thethickerandmorewelldevelopedakumois,thegreaterthesupport/resistanceitwillprovide.

KumoSentiment

Inadditiontoprovidingaviewofsentimentvisavisitsrelationshipwithprice,thekumoitselfalsohasitsown"internal"sentimentorbias.Thismakessensewhenweconsiderthatthekumoismadeupofessentiallytwomovingaverages,thesenkouspanAandthesenkouspanB.WhenthesenkouspanAisabovethesenkouspanB,thesentimentisbullishsincethefastermovingaverageistradingabovetheslower.Conversely,whenthesenkouspanBisabovethesenkouspanA,thesentimentisbearish.

ThisconceptofkumosentimentcanbeseeninFigureIVbelow:



FIGUREIVKumoSentiment

WhenthesenkouspanAandBswitchplacesthisindicatesanoveralltrendchangefromthislongertermperspective.Ichimokupractitionersthuskeepaneyeontheleadingkumo'ssentimentforcluesaboutbothcurrenttrendaswellasanyupcomingtrendchanges.The"senkouspancross"isanactualtradingstrategythatutilizesthiskumotwistasbothanentryaswellasacontinuationorconfirmationsignal.MoreonthisstrategyiscoveredinourIchimokuTradingStrategiessection.

FlatTop/BottomKumos

Theflattoporbottomthatisoftenobservedinthekumoiskeytounderstandingonepieceofthekumo's"equilibriumequation".Justlikethe"rubberband



effect"thataflatkijunsencanexertonprice,aflatsenkouspanBcanactinthesameway,attractingpricethatisincloseproximity.Thereasonforthisissimple:aflatsenkouspanBrepresentsthemidpointofatrendlesspricesituationovertheprior52periodspriceequilibrium.Sincepricealwaysseekstoreturntoequilibrium,andtheflatsenkouspanBissuchastrongexpressionofthisequilibrium,itbecomesanequallystrongattractorofprice.

Inabullishtrend,thisflatsenkouspanBwillresultinaflatbottomkumoandinabearishtrenditwillmanifestasaflattopkumo.TheIchimokupractitionercanusethisknowledgeofthephysicsoftheflatsenkouspanBinordertobemorecautiousaboutboththeirexitsoutofthekumo.Forinstance,whenexitingaflatbottom(bullish)kumofromthebottom,ratherthanmerelyplacinganentryorder10pipsbelowthesenkouspanB,savvyIchimokupractitionerswilllookforanotherpointaroundwhichtobuildtheirentryordertoensuretheydon'tgetcaughtintheflatbottom's"gravitationalpull".Thismethodminimizesthenumberoffalsebreakoutsexperiencedbythetrader.

SeethehighlightedareasinthechartforFigureVbelowforanexampleofflattopandbottomkumos:



FIGUREVFlatTopandFlatBottomKumos

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04/06/2015 TrendtradingIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

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TrendtradingFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

Definition

"Trendfollowingisaninvestmentstrategythattakesadvantageoflongtermmovesthatplayoutinvariousmarkets...Traderswhousethisapproachcanusecurrentmarketpricecalculation,movingaveragesandchannelbreakoutstodeterminethegeneraldirectionofthemarketandtogeneratetradesignals.Thisapproachisreactive,diversified,longterm,andsystematicbynature.Traderswhosubscribetoatrendfollowingstrategydonotaimtoforecastorpredictmarketsorpricelevelstheysimplyjumponthetrendandrideit."

DefinitionoftrendfollowingfromWikipedia

IchimokuKinkoHyoandTrendTrading

ItmustbeunderstoodbyanywhowishestousethepowerofIchimokuKinkoHyothatitis,firstandforemost,atrendtradingsystem.ItisfurtherassumedthatthetraderwieldingIchimokudoessowithasolidundertandingofthebasictenetsoftrendtrading.Thisisakeyassumption,sinceknowledgeofhowtotradethetrendisabsolutelycriticaltolongtermsuccesswithIchimoku.Ichimokuonitsownwillnotteachonetheunderlyingphilosophyoftrendfollowing,sowemustmakeaspecialmentalnoteatthispointregardingthekeyfactorsinvolvedinsuccessfultrendtrading.

Trendtraders:

NEVERattempttopredictwherethemarketwillgoNEVERattempttopick"tops"and"bottoms"ofpriceactionALWAYSrespectthetrendandaligntheirtradesaccordinglyLetthemarkettellthemwhenthetrendisfinished,nottheir"intuition"RealizethattheywillnecessarilysacrificesomepipsatthebeginningandendofatrendastheywaitforconfirmationthatthetrendbeginningandendareauthenticLookatpriceactionfromalongtermperspectiveanddon'tgetshakenbyvolatilityUnderstandthattheywillgothroughsomepotentiallysignificantbuttemporaryperiodsofdrawdownasthetrendmatures

04/06/2015 TrendtradingIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

http://www.kumotrader.com/ichimoku_wiki/index.php?title=Trend_trading 2/2

UnderstandthattrendtradingcanleadtolargegainsbutalsoequallylargelossesUnderstandthattrendscantakeplaceonmultipletimeframes

Profitabletrendtradingis99%mental.Ifonecanconquertheirmindandquelltheinevitableinnerdialoguethatscreams"Whoa!Lookslikepriceisgoingagainstyourposition!ThetrendmustbeendingSELLNOW!!"andkeeptheireyesonthelongterm,theystandanexcellentchanceatbeingasuccessful,happyandstressfreetrendtrader.However,iftheycannotturnoffthisinnerdialogueoratleastignoreitandkeeptheirfocusonthelongterm,thentheyareinforaveryshort,verybumpyrideasaForextrader.

Asachartingsystemthatispurposebuiltfortrendtrading,IchimokuKinkoHyocanprovidethesavvypractitionerwithamuchdeeperviewofthetrendandtherefore,moresecureentryandexitsignalsthananyothertrendtradingsystemavailable.Nevertheless,itmustbecombinedwiththepropermindsetinordertobeusedtoitsfullpotential.

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04/06/2015 IchimokutradingstrategiesIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

http://www.kumotrader.com/ichimoku_wiki/index.php?title=Ichimoku_trading_strategies 1/22


IchimokutradingstrategiesFromIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem

Contents

1READTHISFIRST!2TenkanSen/KijunSenCross

2.1Entry2.2Exit2.3StopLossPlacement2.4TakeProfitTargets2.5CaseStudy

3KijunSenCross3.1Entry3.2Exit3.3StopLossPlacement3.4TakeProfitTargets3.5CaseStudy

4KumoBreakout4.1Entry4.2Exit4.3StopLossPlacement4.4TakeProfitTargets4.5CaseStudy

5SenkouSpanCross5.1Entry5.2Exit5.3StopLossPlacement



5.4TakeProfitTargets5.5CaseStudy

6ChikouSpanCross6.1Entry6.2Exit6.3StopLossPlacement6.4TakeProfitTargets6.5CaseStudy

READTHISFIRST!

Ichimokuisafinelytuned,integratedchartingsystemwherethefivelinesallworkinconcerttoproducetheendresult.Weemphasizetheword"system"herebecauseitisabsolutelykeytounderstandinghowtousethevarioustradingstrategiesweoutlineinthissection.EverystrategycoveredbelowistobeusedandmeasuredagainsttheprevailingIchimoku"picture"ratherthaninisolation.Thismeansthat,whileascenariothatmatchesagivenstrategymayhavetranspired,youstillmustweighthatsignalagainsttherestofthechartinordertodeterminewhetherornotitoffersahighprobabilitytrade.AnotherwayoflookingatitisthatIchimokuisasystemandthediscretestrategiesfortradingitaremerely"subsystems"withinthatlargersystem.Thus,lookingattradinganyofthesestrategiesfromanautomatedorisolatedapproachthatdoesn'ttakeintoaccounttherestofwhattheIchimokuchartistellingyouwillmeetwithmixedlongtermsuccess,atbest.

Don'tmisinterpretthemessagethestrategiesoutlinedbelowareverypowerfulandcanbringconsistentresultsifusedwiselywhichiswithinthescopeofthelargerIchimokupicture.Weaskthatyoualwayskeepthisinmindwhenemployingthesestrategies.

IfyouareinterestedindiscussingthesetradingstrategiesinmoredetailwithboththeauthorsandotherIchimokutraders,pleasevisittheKumoTraderIchimokuForum(http://www.boersmaandhunt.com/kumotrader_forum/index.php?board=23.0).

TenkanSen/KijunSenCross

Thetenkansen/kijunsencrossisoneofthemosttraditionaltradingstrategieswithintheIchimokuKinkoHyosystem.Thesignalforthisstrategyisgivenwhenthetenkansencrossesoverthekijunsen.Ifthetenkansencrossesabovethekijunsen,thenitisabullishsignal.Likewise,ifthetenkansencrossesbelowthekijunsen,thenthatisabearishsignal.LikeallstrategieswithintheIchimokusystem,thetenkansen/kijunsencrossneedstobeviewedintermsofthebiggerIchimokupicturebeforemakinganytradingdecisions,asthiswillgivethestrategythebestchancesofsuccess.

Ingeneral,thetenkansen/kijunsenstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.

STRONGTENKANSEN/KIJUNSENCROSSSIGNAL

Astrongtenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappensabovethekumo.Astrongtenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappensbelowthekumo.



NEUTRALTENKANSEN/KIJUNSENCROSSSIGNAL

Aneutraltenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappenswithinthekumo.Aneutraltenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappenswithinthekumo.

WEAKTENKANSEN/KIJUNSENCROSSSIGNAL

Aweaktenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappensbelowthekumo.Aweaktenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappensabovethekumo.

SeethechartinFigureIbelowforanexampleofseveralclassificationsofthetenkansen/kijunsencross:



FIGUREITenkanSen/KijunSenCrossClassifications

Butwait!Haveyoucheckedthechikouspan?

Withthesethreemajorclassificationsinmind,wewilladdsomethingelseintotheequationthechikouspan.Asweexplainedinthesectiondetailingthechikouspan,thiscomponentactsasa"finalarbiter"ofsentimentandshouldbeconsultedwitheverysingletradingsignalintheIchimikuKinkoHyochartingsystem.Thetenkansen/kijunsencrossisnodifferent.EachofthethreeclassificationsoftheTS/KScrossmentionedabovecanbefurtherclassifiedbasedonthechikouspan'slocationinrelationtothepricecurveatthetimeofthecross.Ifthecrossisa"Buy"signalandthechikouspanisabovethepricecurveatthatpointintime,thiswilladdgreaterstrengthtothatbuysignal.Likewise,ifthecrossisa"Sell"signalandthechikouspanis



belowthepricecurveatthatpointintime,thiswillprovideadditionalconfirmationtothatsignal.Ifthechikouspan'slocationinrelationtothepricecurveistheoppositeoftheTS/KScross'ssentiment,thenthatwillweakenthesignal.

Entry

Theentryforthetenkansen/kijunsencrossisverystraightforwardanorderisplacedinthedirectionofthecrossoncethecrosshasbeensolidifiedbyaclose.Nevertheless,inaccordancewithgoodIchimokutradingpractices,thetradershouldbearinmindanysignificantlevelsofsupport/resistancenearthecrossandconsidergettingacloseabovethoselevelsbeforeexecutingtheirorder.

Exit

Theexitfromatenkansen/kijunsencrosswillvarywiththeparticularcircumstancesofthechart.Themosttraditionalexitsignalisatenkansen/kijunsencrossintheoppositedirectionofyourtrade.However,personalriskmanagementandtimeframeconcernsmaydictateanearlierexit,oranexitbaseduponotherIchimokusignals,justasinanyothertrade.

StopLossPlacement

Thetenkansen/kijunsenstrategydoesnotdictateuseofanyparticularIchimokustructureforstoplossplacement,likesomeotherstrategiesdo.Instead,thetradershouldconsidertheirexecutiontimeframeandtheirmoneymanagementrulesandthenlookfortheappropriateprevailingstructureforsettingtheirstoploss.

TakeProfitTargets

Takeprofittargettingforthetenkansen/kijunsencrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swingtraderperspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargetsbutratherwaitsforthecurrenttrendtobeinvalidatedbyatenkansen/kijunsencrosstranspiringintheoppositedirectionoftheirtrade.

CaseStudy

Inthe4HchartinFigureIIbelowwecanseeabullishtenkansen/kijunsencrossatpointA.Sincethiscrosstookplacewithinthekumoitself,itisconsidereda"neutral"buysignal,thuswewaitforpricetoexitandcloseabovethekumotoconfirmthissentimentbeforeplacingourlongentry.PricedoesachieveacloseabovethekumoatpointB(1.5918)andweplaceourlongentryatthatpoint.Forourstoploss,welookfortheplacewhereourtradesentimentwouldbeinvalidated.Inthiscase,thebottomedgeofthekumoprovidesuswithjustthatatpointC(1.5872).

Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilekeepinganeyeoutforpotentialexitsignals.Pricerisesnicelyforthenext10to11daysandthen,onthe15thdayofthetrade,pricedropsenoughtohavethetenkansencrossbelowthekijunsenatpointD.Thisisourexitsignal,sinceIchimokuistellingusthatthesentimenthaschanged,sowecloseourorderat1.6014atpointEforatotalgainofover95pips.



FIGUREIITenkanSen/KijunSenCrossCaseStudy

Formaximumriskmanagementonthistrade,wealsocouldhavemovedourstoplossupwithpriceoncepricewasaconservativedistanceawayfromourentry.Oneoptionfordoingthiswouldbetomovethestoplossupwiththekumo,keepingitjustbelowthebottomedge.Foreventighterriskmanagement,wecouldhavemovedourstoplosswiththekijunsen,keepingit5to10pipsbelowthatlineasitmovedup.

KijunSenCross

ThekijunsencrossisoneofthemostpowerfulandreliabletradingstrategieswithintheIchimokuKinkoHyosystem.Itcanbeusedonnearlyalltimeframeswithexcellentresults,thoughitwillbesomewhatlessreliableonthelower,daytradingtimeframesduetotheincreasedvolatilityonthosetime



frames.Thekijunsencrosssignalisgivenwhenpricecrossesoverthekijunsen.Ifitcrossesthepricecurvefromthebottomup,thenitisabullishsignal.Ifitcrossesfromthetopdown,thenitisabearishsignal.Nevertheless,likealltradingstrategieswithintheIchimokuKinkoHyosystem,thekijunsencrosssignalneedstobeevaluatedagainstthelargerIchimoku"picture"beforecommittingtoanytrade.

Ingeneral,thekijunsencrossstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.

STRONGKIJUNSENCROSSSIGNAL

AstrongkijunsencrossBuysignaltakesplacewhenabullishcrosshappensabovethekumo.AstrongkijunsencrossSellsignaltakesplacewhenabearishcrosshappensbelowthekumo.

NEUTRALKIJUNSENCROSSSIGNAL

AneutralkijunsencrossBuysignaltakesplacewhenabullishcrosshappenswithinthekumo.AneutralkijunsencrossSellsignaltakesplacewhenabearishcrosshappenswithinthekumo.

WEAKKIJUNSENCROSSSIGNAL

AweakkijunsencrossBuysignaltakesplacewhenabullishcrosshappensbelowthekumo.AweakkijunsencrossSellsignaltakesplacewhenabearishcrosshappensabovethekumo.

SeethechartinFigureIIIbelowforanexampleofseveralclassificationsofthekijunsencross:



FIGUREIIIKijunSenCrossClassifications

Chikouspanconfirmation

Aswiththetenkansen/kijunsencrossstrategy,thesavvyIchimokutraderwillmakegooduseofthechikouspantoconfirmanykijunsencrosssignal.Eachofthethreeclassificationsofthekijunsencrossoutlinedabovecanbefurtherclassifiedbasedonthechikouspan'slocationinrelationtothepricecurveatthetimeofthecross.Ifthecrossisa"Buy"signalandthechikouspanisabovethepricecurveatthatpointintime,thiswilladdgreaterstrengthtothatbuysignal.Likewise,ifthecrossisa"Sell"signalandthechikouspanisbelowthepricecurveatthatpointintime,thiswillprovideadditionalconfirmationtothatsignal.Ifthechikouspan'slocationinrelationtothepricecurveistheoppositeofthekijunsencross'ssentiment,thenthatwillweakenthesignal.



Entry

Theentryforthekijunsencrossisverystraightforwardanorderisplacedinthedirectionofthecrossoncethecrosshasbeensolidifiedbyaclose.Nevertheless,inaccordancewithgoodIchimokutradingpractices,thetradershouldbearinmindanysignificantlevelsofsupport/resistancenearthecrossandconsidergettingacloseabovethoselevelsbeforeexecutingtheirorder.

Exit

Atraderexitsakijunsencrosstradeupontheirstoplossgettingtriggeredwhenpricecrossingthekijunsenintheoppositedirectionoftheirtrade.Thus,itiskeythatthetradermovetheirstoplossinlockstepwiththemovementofthekijunseninordertomaximizetheirprofit.

StopLossPlacement

ThekijunsencrossstrategyisuniqueamongIchimokustrategiesinthatthetrader'sstoplossisdeterminedandmanagedbythekijunsenitself.Thisisduetothekijunsen'sstrongrepresentationofpriceequilibrium,whichmakesitanexcellentdeterminantofsentiment.Thus,ifpriceretracesbackbelowthekijunsenafterexecutingabullishkijunsencross,thenthatisagoodindicationthatinsufficientmomentumispresenttofurtherthenascentbullishsentiment.

Whenenteringatradeuponakijunsencross,thetraderwillreviewthecurrentvalueofthekijunsenandplacetheirstoploss5to10pipsontheoppositesideofthekijunsenthattheirentryisplacedon.Theexactnumberofpipsforthestoploss"buffer"above/belowthekijunsenwilldependuponthedynamicsofthepairandprice'shistoricalbehaviorvisavisthekijunsenaswellastherisktoleranceoftheindividualtrader,but5to10pipsshouldbeappropriateformostsituations.WhenlookingtoenterShort,thetraderwilllooktoplacetheirstoplossjustabovethecurrentkijunsenandwhenlookingtoenterLong,thetraderwillplacetheirstoplossjustbelowthecurrentkijunsen.

Oncethetradeisunderway,thetradershouldmovetheirstoplossup/downwiththemovementofthekijunsen,alwaysmaintainingthe5to10pip"buffer".Inthisway,thekijunsenitselfactsasa"trailingstoploss"ofsortsandenablesthetradertokeepatightholdonriskmanagementwhilemaximizingprofits.

TakeProfitTargets

Takeprofittargettingforthekijunsencrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swingtraderperspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargetsbutratherwaitsforthecurrenttrendtobeinvalidatedbypricecrossingbackoverthekijunsenintheoppositedirectionoftheirtrade.

CaseStudy

Inthe1DchartinFigureIVbelowforUSD/CHFwecanseeabullishkijunsencrossatpointA.Whiletheinitialcrossisabovethekumoandthereforearelativelystrongcross,itisstillbeneathaverykeychikouspanlevel(notvisibleonthischart),sowewaituntilwegetacloseabovethatkeylevelbeforeenteringatpointB.Atthispoint,wealsohavetheadditionalbenefitofconfirmationfromabullishtenkansen/kijunsencrossandaniceupwardangletothekijunsen,bolsteringourprospectsformorebullishpriceactionevenmore.Forourstoploss,wefollowthekijunsentradingstrategy



guidelinesandplaceit10pipsbelowtheprevailingkijunsenatpointC.

Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilecontinuallymovingupourstoplosswiththekijunsen.Pricerisesnicelyforthenext40daysstayingwellabovethekijunsen.Afterthispoint,pricebeginstodropand,onthe44thday,pricecrossesthekijunsenandhitsourstoplossatpointDclosingoutourtradeandnettingusaprofitof641pips.

FIGUREIVKijunSenCrossCaseStudy

KumoBreakout



KumoBreakouttradingor"KumoTrading"isatradingstrategythatcanbeusedonmultipletimeframes,thoughitismostwidelyusedonthehighertimeframes(e.g.:Daily,Weekly,Monthly)ofthepositiontrader.KumobreakouttradingisthepurestformoftrendtradingofferedbytheIchimokuchartingsystem,asitlookssolelytothekumoandprice'srelationshiptoitforitssignals.Itis"bigpicture"tradingthatfocusesonlyonwhetherpriceistradingaboveorbelowtheprevailingkumo.Inanutshell,thesignaltogolonginKumobreakouttradingiswhenpriceclosesabovetheprevailingkumoand,likewise,thesignaltogoshortiswhenpriceclosesbelowtheprevailingkumo.

SeethechartinFigureVbelowforanexampleofakumobreakoutbuysignal:

FIGUREVKumoBreakoutBuySignal

Entry



Theentryforthekumobreakouttradingstrategyissimplewhenpriceclosesabove/belowthekumo,thetraderplacesatradeinthedirectionofthebreakout.Nevertheless,caredoesneedtobetakentoensurethebreakoutisnota"headfake"whichcanbeespeciallyprevalentwhenthebreakouttakesplacefromaflattop/bottomkumo.Toensuretheflattop/bottomisnotgoingtoattractpricebacktothekumo,itisalwaysadvisabletolookforanotherIchimokustructureto"anchor"yourentrytojustabove/belowthekumobreakout.Thisanchorcanbeanythingfromakeylevelprovidedbythechikouspan,akumoshadoworanyotherappropriatestructurethatcouldactasadditionalsupport/resistancetosolidifythedirectionandmomentumofthetrade.

Kumobreakouttradersalsomakegooduseoftheleadingkumo'ssentimentbeforecommittingtoatrade.IftheleadingkumoisaBearkumoandthekumobreakoutisalsoBear,thenthatisaverygoodsignthatthebreakoutisnotanaberrationofexcessivevolatility,butratheratrueindicationofmarketsentiment.Iftheleadingkumocontradictsthedirectionofthebreakout,thenthetradermaywanttoeitherwaituntilthekumodoesagreewiththedirectionofthetradeorusemoreconservativepositionsizingtoaccountfortheincreasedrisk.

Exit

Theexitfromakumobreakouttradeistheeasiestpartofthewholetrade.Thetradermerelywaitsfortheirstoplosstogettriggeredaspriceexitstheoppositesideofthekumoonwhichthetradeistranspiring.Sincethetraderhasbeensteadilymovingtheirstoplossupwiththekumoduringtheentirelifespanofthetrade,thisassurestheymaximizetheirprofitandminimizetheirrisk.

StopLossPlacement

Beinga"bigpicture"trendtradingstrategy,thestoplossforthekumobreakoutstrategyisplacedatthepointthatthetrendhasbeeninvalidated.Thus,thestoplossforakumobreakouttrademustbeplacedontheoppositesideofthekumothatthetradeistranspiringon,1020pipsawayfromthekumoboundary.Ifpricedoesmanagetoreachthepointofthestoploss,thetradercanberelativelyassuredthatamajortrendchangehastakenplace.

TakeProfitTargets

Whiletraditionaltakeprofittargetscanbeusedwiththekumobreakouttradingstrategy,itismoreinlinewiththelongtermtrendtradingapproachtosimplymovethestoplossup/downwiththekumoasitmatures.Thismethodallowsthetradetotakefulladvantageofthetrendwithoutclosingthetradeuntilpriceactiondictatesunequivocallythatthetrendisover.

CaseStudy

IntheWeeklychartinFigureVIbelowforAUD/USDwecanseeabearishkumobreakouttakingplaceatpointA.Wealsoseethatthatleadingkumoisdistinctlybearishaswell,whichactstoconfirmourbreakoutsentiment.Giventhatpriceisexitingfromaflatbottomkumoandthatwewanttoreduceanyrisksofenteringonafalsebreakout,welookforaclosebelowthelastchikouspansupportat.7600beforeentering.TheclosewearelookingforisachievedshortlythereafteratpointBandweentershort.

Forourstoploss,wefollowthekumobreakoutguidelineofplacingit1020pipsawayfromtheoppositesideofthekumowhereourbreakoutistakingplace.Inthiscase,weplaceit20pipsawayfromthetopofthekumoaboveourentrycandleatpointC(.7994).

Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilecontinuallymovingourstoplossdownwiththeprevailing



kumo.GiventhatweareusingtheWeeklychartasourexecutiontimeframe,weprepareourselvesforaverylongtermtrade.Inthiscase,nearlytwoyearslater,pricerisesenoughtobreakoutofthekumototheotherside,whereittriggersourbuyordersome20pipsawayatpointDnettingusover1100pipsintheprocess.

FIGUREVIKumoBreakoutCaseStudy

SenkouSpanCross

ThesenkouspancrossisoneofthelesserknowntradingstrategieswithintheIchimokuKinkoHyosystem.Thisismostlyduetothefactthatthesenkouspancrosstendstobemorecommonlyusedasanadditionalconfirmationwithothertradingstrategiesratherthanbeingusedasastandalonetradingstrategyinitsownright.However,itisnonethelessasolidtrendtradingstrategyandcandefinitelybeusedonitsown.



Giventhatthesenkouspancrossstrategy,likethekumobreakouttradingstrategy,utilizethekumoforsignalgeneration,itisbestemployedonthelongertimeframesoftheDailychartandabove.ThesenkouspancrosssignalisgivenwhenthesenkouspanAlinecrossesoverthesenkouspanBlineofthekumo.IfthesenkouspanAcrossesthesenkouspanBfromthebottomup,thenitisabullishsignal.Ifitcrossesfromthetopdown,thenitisabearishsignal.Nevertheless,likealltradingstrategieswithintheIchimokuKinkoHyosystem,thesenkouspancrosssignalneedstobeevaluatedagainstthelargerIchimoku"picture"beforecommittingtoanytrade.

Thethingtokeepinmindwiththesenkouspancrossstrategyisthatthe"cross"signalwilltakeplace26periodsaheadofthepriceactionasthekumoistimeshifted26periodsintothefuture.Thisrelationshipisobviouswhenonelooksatthecurrentpriceonalivechart,butlesssowhenlookingathistoricalpriceaction.Inaddition,whileallIchimokustrategiesshouldbeexercisedwiththelargerIchimokupictureinmind,thisisparticularlyimportantwiththesenkouspancross.Thus,determiningtheoveralltrendonhighertimeframesfirstandthentakingonlysenkouspansignalsthatalignwiththattrendonthelowertimeframesisthebestimplementationofthesenkouspanstrategy.

Ingeneral,thesenkouspancrossstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.

STRONGSENKOUSPANCROSSSIGNAL

Astrongsenkouspancrosssignaltakesplacewhenthepricecurveisonthesideofthekumothatmatchesthesentimentofthesenkouspancross.

NEUTRALSENKOUSPANCROSSSIGNAL

Aneutralsenkouspancrosssignaltakesplacewhenthepricecurveisinsidethekumoatthetimeofthesenkouspancross.

WEAKSENKOUSPANCROSSSIGNAL

Aweaksenkouspancrosssignaltakesplacewhenthepricecurveisontheoppositesideofthekumothatmatchesthesentimentofthesenkouspancross.

ThechartinFigureVIIbelowshowssomeclassificationsofthesenkouspancross.Thedashedverticallinesrepresentthe26periodrelationshipbetweenpriceandthesenkouspancross.Thus,pointArepresentsabullishsenkouspancrossthatcanbecategorizedasa"strong"buysignalduetothefactthatprice(pointB),atthepointofthecross,wastradingabovethekumo.Likewise,pointCrepresentsabearishsenkouspancrossthatgeneratedastrongsellsignalduetoprice'slocationatpointDbelowthekumo.ThesenkouspancrossatPointEgeneratedaneutralbuysignalsinceprice(pointF)wastradingwithinthekumoatthatpoint.



FIGUREVIISenkouSpanCrossClassifications

Entry

Theentryforthesenkouspancrosstradingstrategyisrelativelysimple,though,asmentionedabove,entriesdorequireevenmoreattentiontotheoveralltrendonhighertimeframesbeforeexecutinganytrades.Afterdeterminingthetrendonthehighertimeframes,thetraderlooksforafreshsenkouspancrossinthesamedirectionastheoveralltrendthathasbeensolidifiedbyacloseontheexecutiontimeframe.Oncetheyidentifyasuitableopportunity,theyinitiateapositioninthedirectionofthesenkouspansentiment.AsinallIchimokutradingstrategies,traderswillbewelladvisedtoconsidertherelativestrengthofthecross(visavisprice'slocationrelativetothekumo)aswellasthesentimentprovidedbytheremainingIchimokucomponentsatthetimeofthecrossinordertoensurethemostoptimumentry.



Itisworthmentioningherethatthestrongbull(buy)signaloutlinedinourfirstchartthattookplaceinAprilof2005,whiletechnicallystrongfroma1Dperspective,wasnotalignedwiththeoveralldowntrendinplaceontheWeeklyandMonthlycharts.Thus,traderstakingthistradesignalandusingasenkouspancrossintheoppositedirectionastheirexitsignalwouldhaveactuallylostpips.Thisunderscorestheimportanceofevaluatingsentimentonmultipletimeframesandtradingwiththeoveralltrend.

Exit

Theexitfromasenkouspancrosstradeisgenerallysignalledbyasenkouspancrossintheoppositedirectionofthetrade,thoughotherexitsignalsmaybetakendependinguponthetrader'srisktoleranceandprofitgoals.

StopLossPlacement

Beinga"bigpicture"trendtradingstrategylikethekumobreakoutstrategy,thestoplossforthesenkouspancrossstrategyisplacedontheoppositesideofthekumothatthetradeistranspiringon,1020pipsawayfromthekumoboundary.

TakeProfitTargets

Whiletraditionaltakeprofittargetscanbeusedwiththesenkouspancrosstradingstrategy,itismoreinlinewiththelongtermtrendtradingapproachtowaitforasenkouspancrosstotranspireintheoppositedirectionofthetradebeforeclosingouttheposition.Thismethodallowsthetradetotakefulladvantageofthetrendwithoutclosingthetradeuntilpriceactiondictatesunequivocallythatthetrendisover.

CaseStudy

IntheDailychartinFigureVIIIbelowforUSD/CADwecanseeabearishsenkouspancrossatpointA.ThiscrosscorrespondstothecandleatpointB.Sincethecandleclosedjustbelowthekumo,thesignalisconsideredastrongonegiventhatitssentimentagreeswiththesentimentofthebearishsenkouspancross.Inaddition,weconfirmthatthedirectionofthissignalisalignedwiththeoveralldowntrendinplaceontheWeeklyandMonthlytimeframes,soweknowthatwearetradingwiththetrend.Nevertheless,wearewaryoftheflatbottomkumojusttotherightofthecandle,whichcouldactasanattractorforprice,sowelookforaconservativeentrypointthatwillensurewewillnotgetcaughtinanyfalsebreakouts.Thelastchikouspansupportat1.2292lookslikeagoodanchorpointforassuringthis.Priceclosesbelowthispointacoupleofdayslaterat1.2290andweentershortatpointC.

Forourstoploss,wefollowthekumobreakoutguidelineofplacingit1020pipsawayfromtheoppositesideofthekumowhereourtradeistakingplace.Inthiscase,weplaceit20pipsawayfromthetopofthekumoaboveourentrycandleatpointD(1.2542).

Onceweplaceourentryandstoplossorders,wewaitforthetradetounfoldwhilecontinuallymovingourstoplossdownwiththeprevailingkumo.Inthiscase,abitmorethanfourmonthslater,priceranginghascreatedafreshsenkouspancrossintheoppositedirectionofourtradeatpointE,correspondingtothecandleatpointFwherewecloseoutourtradeat1.1908,nettingusover380pipsintheprocess.



FIGUREVIIISenkouSpanCrossCaseStudy

ChikouSpanCross

ForthosethathavebeenusingtheIchimokuKinkoHyochartingsystemforanylengthoftime,utilizingthechikouspancrossstrategyshouldbelikesecondnature.Why?Becausethechikouspancrossisessentiallythe"chikouspanconfirmation"thatsavvyIchimokutradersutilizetoconfirmchartsentimentbeforeenteringanytrade.Thisconfirmationcomesintheformofthechikouspancrossingthroughthepricecurveinthedirectionoftheproposedtrade.Ifitcrossesthroughthepricecurvefromthebottomup,thenitisabullishsignal.Ifitcrossesfromthetopdown,thenitisconsideredabearishsignal.



Thus,wealreadyknowthepowerofthechikouspancrossviaitsuseasaconfirmationstrategy.However,whenusedwithinsomesimpleguidelines,thechikouspancrosscanbeusedasitsownstandalonetradingstrategywithverygoodsuccess.

LikemanyotherIchimokutradingstrategies,thechikouspancrossstrategyusesprice'srelationshiptothekumotocategorizeitssignalsintothree(3)majorclassifications:strong,neutralandweak.

STRONGCHIKOUSPANCROSSSIGNAL

AstrongchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceisabovethekumoAstrongchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceisbelowthekumo.

NEUTRALCHIKOUSPANCROSSSIGNAL

AneutralchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceiswithinthekumoAneutralchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceiswithinthekumo.

WEAKCHIKOUSPANCROSSSIGNAL

AweakchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceisbelowthekumoAweakchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceisabovethekumo.

ThechartinFigureIXbelowprovidesseveralexamplesofthechikouspancross.Giventhefactthatthechikouspanisameasureofclosingpriceshifted26periodsintothepast,wemustalwayskeepinmindboththelocationofthechikouspaninrelationtothepricecurve(the"cross"itself)andthecurrentcandleanditsrelationtothekumo.Thus,PointA1isthepointwherethechikouspancrossedthepricecurvedownwardandPointA2istheclosingcandlethatinitiatedthatbearishcross.However,sincethecandleatPointA2wasabovetheprevailingkumoatthepointofthecross,thisparticularsignalwouldbecategorizedasa"weak"bearishcross.AstrongbullishcrosscanbeseeninPointsB1andB2sincethechikouspancrossedupwardthroughthepricecurveandtheclosingcandleatthatpointintimewasabovetheprevailingkumo.PointsC1andC2representaweakbearishcrossgiventhattheytranspiredabovetheprevailingkumo.



FIGUREIXChikouSpanCrossClassifications

Entry

Theentryforthechikouspancrossisrelativelystraightforwardthetraderinitiatesapositioninthedirectionofthechikouspancrossaftertakingintoconsiderationthecross'sstrengthandotherchartsignals.Forthehighestprobabilityofsuccess,thetraderwillalsolookforthechikouspanitselftobefreeofthekumoasthechikouspancanofteninteractwiththekumomuchlikethepricecurve.



Exit

Themosttraditionalexitforachikouspancrosstradeisgenerallysignalledbyachikouspancrossintheoppositedirectionofthetrade,thoughotherexitsignalsmaybetakendependinguponthetrader'srisktoleranceandprofitgoals.

StopLossPlacement

ThechikouspanstrategydoesnotdictateuseofanyparticularIchimokustructureforstoplossplacement,likesomeotherstrategiesdo.Instead,thetradershouldconsidertheirexecutiontimeframeandtheirmoneymanagementrulesandthenlookfortheappropriateprevailingstructureforsettingtheirstoploss.

TakeProfitTargets

Takeprofittargettingforthechikouspancrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swingtraderperspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargetsbutratherwaitsforthecurrenttrendtobeinvalidatedbyachikouspancrosstranspiringintheoppositedirectionoftheirtrade.

CaseStudy

IntheDailychartinFigureXbelowforUSD/CHFwecanseeabullishchikouspancrossatpointA.However,whileitistechnicallyastrongcross,thechikouspanisstillbelowsignificantresistanceprovidedbythetwochikouspanpointsat1.2090.Inaddition,thetenkansenandkijunsenareinaflatconfigurationwhichdoesn'tprovideanyadditionalconfirmation.ThuswewaitforamoreconvincingsetupbeforeenteringLong.Thisisachievedfive(5)dayslateratPointB1whenthechikouspanmovesbackupthroughthepricecurveafterabriefdipbelow.Wewaitforthedailycandletocloseandthenenterlongat1.2164atPointB2.Ourconfidenceinthisentryisincreasedbythebullishtenkansen/kijunsencrossthathassincetranspired.

Forourstoploss,weconsidertheprevailingstructuresanddecidetoplaceitjustbelowthekijunsenat1.1956,sinceacrossbelowthatpointwillnotonlyhavethechikouspanexecutingafreshbearishcross,butalsohavepriceexecutingabearishkijunsencross,bothofwhichwouldinvalidateourlongposition.

Onceweplaceourentryandstoplossorders,wewaitforthetradetounfold.Dependinguponourtradingstyle,wecouldopttotrailourstoplossalongwiththekijunsentokeepatighterreinonriskmanagementorwecouldutilizethemoretraditionalmethodofwaitingforachikouspancrossintheoppositedirectionofourtrade.Inthiscase,achikouspancrossintheoppositedirectiontakesplacejustundertwomonthslater(PointC1)at1.2619(PointC2)andwecloseoutourtradeforagainofover450pips.Itisworthnotingthat,eventhoughthechikouspancrossonitsownwouldbeconsideredtechnically"weak"duetoitslocationabovethekumo,itisbolsteredbyabearishtenkansen/kijunsencrosstoformabearishthreelinepattern.Alternatively,ifwehadchosentousethekijunsenasourtrailingstopinthistrade,insteadofwaitingforachikouspancross,wewouldhaveexitedsomewherearoundthe1.2735level,whichwouldhavenettedusover560pips.



FIGUREXChikouSpanCrossCaseStudy

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