Ichimoku: Trend and Momentum in Multiple Timeframes

The Ichimoku Kinko Hyo indicator was developed by Goichi Hosoda who published a book about it back in 1969. It is a versatile indicator that defines support / resistance, trend direction, momentum as well as trade signals. To learn more, watch the video or continue reading below.

Tenkan-sen vs. Kijun-sen

The Ichimoku applies five (5) timeframes to determine the trend and momentum. The shortest timeframe is the Tenkan-sen which is calculated using a 9-period high adding a 9-period low and dividing by two (9-period high + 9-period low)/2)). Incidentally, this calculation is identical to that of the Donchian Channel Mid line, when applied to a 9 bar period. A slower short term timeframe, the Kijun-sen, applies the same formula on a 26 period (26-period high + 26-period low)/2)). Again, it’s the identical formula as for a Donchian Channel Mid line, applied to a 26 bar lookback.

The relationship between the two is similar to that of a 9 and 26 period moving average. The 9 period is faster and follows the price plot relatively closely whereas the 26-period is slower. As if to underline the momentum qualities of the indicator, the 9 and 26 periods are also the default values for calculating the MACD.

A typical scenario is therefore to wait for the Tenkan-sen to cross the Kijun-sen. However, although effective, this crossover will occur infrequently in strong trends. Therefore, additional signals may be located when price itself crosses the Kijun-sen or the Tenkan-sen lines. One may then look for thrust bars, i.e. close above/below the previous high/low in order to validate the signal.

The Ichimoku Cloud (Kumo)

The cloud is comprised of two lines, the Senkou Span A (green) and the Senkou Span B (red). The two lines are displaced forwards 26 bars to identify the current trend. An uptrend is considered strong if the Senkou Span A (green line) has crossed above the Senkou Span B (red line), plotting a green cloud. A strong downtrend has a falling Senkou Span A (green line), crossing below the Senkou Span B (red line) and plotting a red cloud.

Again the cloud is displaced forward 26 bars, providing a forecast of future support / resistance. Therefore, if prices move above the cloud it indicates breaking resistance, and possibly the beginning of a new uptrend. If prices break below the cloud, support is failing and we could see the beginning of a new downtrend. If prices are trading within the cloud we’re in a sideways market.

The Chikou Span:

The Chikou Span line is the close displaced back 26 bars. Again, it’s a momentum filter and the rule is simple: The Chikou Span has to be on your side, meaning that if you take a long position it should be above where the price 26 bars ago. For short positions, the Chikou Span has to be below where price was 26 bars ago. Finally, a log term momentum indication is seen when the Chikou Span is crossing the Kumo midline.

The Premium Ichimoku:

With the library Ichimoku version, you have access to all of the above plots. If you want to define specific trend definitions, we also have a premium version that all you to choose between eight (8) different parameters:

  • Price vs. Tenkan-sen (Tenkan Cross)
  • Price vs. Kijun-sen (Kijun Cross)
  • Tenkan-sen vs. Kijun-sen (Tenkan – Kijun Cross)
  • Price vs. Kumo
  • Price vs. Kumo midline
  • Senkou A vs. Senkou B (Senkou Cross) – 26 bars forward
  • Price vs. Chikou, 26 bars backwards
  • Chikou vs. Kumo, 26 bars backwards

The composite trend is displayed with paintbars (up, down, neutral). In addition to the trend reading, the premium version displays trade signals (Key and secondary). Finally, the premium version also comes with alerts (log and sound files) and a market analyzer scanner for trade signals and trend changes.

To have a look at all the different Library Ichimoku vs. the Premium features side by side, you may do so here. There’s currently a pre-launch special for the Premium Indicator here.

To download theLibrary Ichimoku indicator, visit the indicator library now: