Ichimoku: Trend and Momentum in Multiple Timeframes

Ichimoku Cloud indicator for NinjaTrader 8

The Ichimoku Kinko Hyo indicator was developed by Goichi Hosoda who published a book about it back in 1969. The most prominent feature of the indicator is the Ichimoku cloud which 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.

Ichimoku Cloud Indicator for NT8

The Ichimoku Cloud (Kumo)

The Ichimoku 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 Composite Trend

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).

The best way to make use of the Ichimoku cloud indicator for system trading is by calling the composite trend. A composite trend is created by combining the selected trend filters. The composite trend is bullish, when all component filters are bullish. Conversely, it is bearish when all component filters are bearish and neutral when the filters contradict one another.

Ichimoku Cloud Indicator for System Trading
Premium Ichimoku Indicator: Composite Trend Determines Trade Setups

Ichimoku Cloud Indicator Signals

The above chart displays the default trend filters settings:

  1. Long and short breakouts from Kumo
  2. Kijun-sen crosses (price crossing Kijun-sen from above or below)
  3. Tenkan-sen Kijun-sen crosses (Tenkan-sen crossing Kijun-sen from above or below)

This means that the chart will show a bullish Ichimoku cloud signal for the first bar where all of (1), (4) and (5) are bullish. For a bullish signal the following conditions must therefore apply:

  • Price is above the Kumo
  • Price is above Kijun-sen
  • Tenkan-Sen is above Kijun-sen
  • The composite trend is neutral or bearish for the prior bar

Additionally, further price action conditions are required for bullish Ichimoku cloud signals:

  • The signal bar must be an upclose (close > open)
  • The signal bar must close in the upper half of its range
  • The signal bar must have a significant range (at least half the size of the average range)
  • The signal bar must close above the high of the prior bar

If the price action requirements are not met, the signal will be skipped.

Key vs. Standard Signals:

A bullish key Ichimoku cloud signal is the first bullish signal that follows after a bearish signal. Conversely, a bearish key signal is the first bearish signals that follows after a bullish signal.

Key signals plot as double triangles whereas signals that plot with a single triangle are consecutive signals. Key signals therefore mark the beginning of a new trend, consecutive Ichimoku cloud signals show trend continuation.

Ichimoku Cloud System Trading

All trade signals are available as DataSeries (Series <double>) and identical to how they plot on the chart. You may furthermore choose to identify Key Signals only.

When the Ichimoku cloud indicator (or strategy) is set to Calculate.OnBarClose, signals will be generated at the close of the signal bar. When the indicator (or strategy) is set to Calcualte.OnPriceChange, signals will be generated with the first tick of the bar that follows the signal bar. The indicator is not designed to generate signals intra-bar, as such signals may become invalid prior to the bar close.

The Ichimoku cloud indicator will however trigger alerts (alerts log and sound alerts) prior to bar close, allowing for making a decision on trade entry prior to the actual signal. Finally, the premium version comes with a market analyzer scanner for trade signals and trend changes.

Conclusion:

The Ichimoku Cloud indicator comes with 8 trend filters. With the premium version, simply activate the trend filters as needed. For automated strategies, access the signals directly via the public properties “LongKeySignal”, “ShortKeySignal”, “LongSignal”, “ShortSignal”. The data series hold exactly the same signals as plotted on your chart. In Calculate.OnPriceChange signal will be created with the first tick of the bar following the signal bar.

To have a look at all the different Library Ichimoku vs. the Premium features side by side, you may do so here. For more information on the premium Ichimoku Cloud Indicator (available for NinjaTrader 7 and 8) please refer to this link.

To download the Library version of the Ichimoku cloud indicator, please use the below download link: