Ichimoku Kinko Hyo

Ichimoku Cloud indicator for NinjaTrader 8

The Ichimoku Kinko Hyo, also known as the Ichimoku Cloud, is a versatile indicator that defines support / resistance, trend direction, momentum and trade signals.The indicator was developed by Goichi Hosoda.

Indicator Description

The Cloud:

The most characteristic feature of the Ichimoku indicator is the cloud (Kumo). It is comprised of two lines, the Senkou Span A (green) and the Senkou Span B (red). A trend can be found by determining whether prices are trading above or below the the cloud. If prices are trading within the Ichimoku indicator cloud, it indicates a sideways market.

Furthermore, 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. Because the cloud is displaced 26 bars forwards, it can also provide a forecast of future support / resistance.

Tenkan-sen vs. Kijun-sen:

The Tenkan-sen (blue) and the Kijun-sen (red) lines are used to identify faster and more frequent market moves. The Tenkan-sen is calculated using a 9-period high adding a 9-period low and dividing by two (9-period high + 9-period low)/2)). The Kijun-sen applies the same formula on a 26 period (26-period high + 26-period low)/2)).

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. The 9 and 26 Ichimoku indicator periods are identical to those used for calculating the MACD.

The classic signal is to wait for the Tenkan-sen to cross the Kijun-sen. However, although effective, the signal will occur infrequently in strong trends. Therefore, additional signals may be located when price crosses the Tenkan-sen, alternatively the Kijun-sen.

Evaluating Ichimoku Setups:

The most favorable setups are aligned with the cloud and the major trend (above green cloud = bullish / below red cloud = bearish). You may also use the Ichimoku indicator to locate support for retracement entries in an uptrend. Conversely, one may use it as resistance for retracement entries in a bigger downtrend.

Finally, the Chikou Span is the close displaced 26 bars back, showing the current momentum.

The indicator is available for NinjaTrader 8 and was featured in a previous issue of the Indicator Spotlight and in a blog post on Ichimoku trading setups. You may also want to register for a free trial of the premium version of the Ichimoku Kinko Hyo indicator.