Ichimoku indicator

Demonstration of the Kumo color change of the Ichimoku indicator, in case of different relative positions of the lines Senkou A and Senkou B. The red line is Tenkan, the blue is Kijun, the green is candlestick price chart and the Chikou line (shifted back and repeating the price movement).

Ichimoku Indicator , Ichimoku Kinko Hyo ( jap. 一目均衡表 and itimoku kinko: hyo:) is a technical indicator developed by Japanese analyst Goichi Hosod ( jap. 細田悟 ─ Hosoda Go: iti ) , printed under the pseudonym Sanjenjj, printed in the 1930s under the pseudonym Sanjenjj. for predicting the movement of Japan Nikkei stock index ^[1] . The Ichimoku indicator combines several approaches to market analysis and is designed to identify trends , support and resistance lines and generate buy / sell signals ^[1] .

Hosoda Goichi improved his indicator for more than thirty years and published the results only in 1968 ^[2] .

Jap. 一目均衡表 can be conditionally translated as “an instant glance at balance” .

Content

Theoretical justification

The Tenkan, Kijun and Senkou B lines of the Ichimoku indicator are analogous to moving averages and therefore can be interpreted separately as indicators of the moving average , and when used together as a MACD indicator ^[3] .

The Chikou line is some analogue of the Momentum indicator.

Method of construction

General Provisions

The Ichimoku indicator consists of five lines plotted on a price chart and a shaded interval between two of them, as shown below.

Time Gaps

To build Ishimoku Kinko Hayo use three time intervals of different duration:

Short - $t_{s}$ ${\ displaystyle t_ {s}}$ traditionally equal to 9 periods .
Average - $t_{m}$ ${\ displaystyle t_ {m}}$ traditionally equal to 26 periods.
A long - $t_{l}$ ${\ displaystyle t_ {l}}$ traditionally equal to 52 periods.

Sanzhdin Ichimoku empirically proved that the indicated gap durations are best for the Nikkei when trading on weekly bars. Typically, such gaps are interpreted as $t_{l}$ ${\ displaystyle t_ {l}}$ (52) - year - estimated horizon for investors, $t_{m}$ ${\ displaystyle t_ {m}}$ (26) - half of the market cycle in this case.

According to some analysts, these ratios are optimal for other timeframes and markets, while clarifying that the trader can choose better quality intervals for their trading parameters.

Lines

Tenkan

Tenkan (Tenkan-sen; Jap. 転換線 - the coup line ) - a short trend line, the values of which are equal to half the sum of the highest and lowest prices in a short period of time ( $t_{s}$ ${\ displaystyle t_ {s}}$ ):

{\textit {Tenkan}}_{t}={\frac {{\underset {i\in [t-t_{s},t]}{\operatorname {max} }}(high_{i})+{\underset {i\in [t-t_{s},t]}{\operatorname {min} }}(low_{i})}{2}},

{\ displaystyle {\ textit {Tenkan}} _ {t} = {\ frac {{\ underset {i \ in [t-t_ {s}, t]} {\ operatorname {max}}} (high_ {i} ) + {\ underset {i \ in [t-t_ {s}, t]} {\ operatorname {min}}} (low_ {i})} {2}},}

Where $high_{i}$ ${\ displaystyle high_ {i}}$ - the maximum price of the i-th period, $low_{i}$ ${\ displaystyle low_ {i}}$ - the minimum price of the i-th period.

Tenkan line is interpreted as the direction of movement of the trend. Moreover, it is believed that the higher the steepness of this line, the more pronounced the trend.

Kijun

Kijun (Kijun-sen; Jap. 基準線 - standard line ) - the average between the maximum and minimum for an average period of time ( $t_{m}$ ${\ displaystyle t_ {m}}$ ):

{\textit {Kijun}}_{t}={\frac {{\underset {i\in [t-t_{m},t]}{\operatorname {max} }}(high_{i})+{\underset {i\in [t-t_{m},t]}{\operatorname {min} }}(low_{i})}{2}}.

{\ displaystyle {\ textit {Kijun}} _ {t} = {\ frac {{\ underset {i \ in [t-t_ {m}, t]} {\ operatorname {max}}} (high_ {i} ) + {\ underset {i \ in [t-t_ {m}, t]} {\ operatorname {min}}} (low_ {i})} {2}}.}

Kijun is used as an indicator of market movement. If prices are higher than that, they are more likely to continue to grow and vice versa.

Senkou A

Senkou A (Senkou span A; jap. 先行 - horseback, galloping in front of the carriage ) - average between Tenkan and Kijun, shifted forward by an average time period ( $t_{m}$ ${\ displaystyle t_ {m}}$ ):

{\textit {SenkouA}}_{t}={\frac {{\textit {Tenkan}}_{t-t_{m}}+{\textit {Kijun}}_{t-t_{m}}}{2}}={\frac {{\underset {i\in [t-t_{m}-t_{s},t-t_{m}]}{\operatorname {max} }}(high_{i})+{\underset {i\in [t-t_{m}-t_{s},t-t_{m}]}{\operatorname {min} }}(low_{i})+{\underset {i\in [t-2\cdot t_{m},t-t_{m}]}{\operatorname {max} }}(high_{i})+{\underset {i\in [t-2\cdot t_{m},t-t_{m}]}{\operatorname {min} }}(low_{i})}{4}}.

{\ displaystyle {\ textit {SenkouA}} _ {t} = {\ frac {{\ textit {Tenkan}} _ {t-t_ {m}} + {\ textit {Kijun}} _ {t-t_ {m }}} {2}} = {\ frac {{\ underset {i \ in [t-t_ {m} -t_ {s}, t-t_ {m}]} {\ operatorname {max}}} (high_ {i}) + {\ underset {i \ in [t-t_ {m} -t_ {s}, t-t_ {m}]} {\ operatorname {min}}} (low_ {i}) + {\ underset {i \ in [t-2 \ cdot t_ {m}, t-t_ {m}]} {\ operatorname {max}} (high_ {i}) + {\ underset {i \ in [t-2 \ cdot t_ {m}, t-t_ {m}]} {\ operatorname {min}}} (low_ {i})} {4}}.}

Senkou B

Senkou B (Senkou span B; jap. 先行 - horseback, galloping in front of the carriage ) - the average between the maximum and the minimum for a long period of time ( $t_{l}$ ${\ displaystyle t_ {l}}$ ), shifted forward for an average period of time ( $t_{m}$ ${\ displaystyle t_ {m}}$ ):

{\textit {SenkouB}}_{t}={\frac {{\underset {i\in [t-t_{m}-t_{l},t-t_{m}]}{\operatorname {max} }}(high_{i})+{\underset {i\in [t-t_{m}-t_{l},t-t_{m}]}{\operatorname {min} }}(low_{i})}{2}}.

{\ displaystyle {\ textit {SenkouB}} _ {t} = {\ frac {{\ underset {i \ in [t-t_ {m} -t_ {l}, t-t_ {m}]} {\ operatorname {max}}} (high_ {i}) + {\ underset {i \ in [t-t_ {m} -t_ {l}, t-t_ {m}]} {\ operatorname {min}}} (low_ {i})} {2}}.}

Chikou

Chikou (Chikou span; jap. 遅行 - upset, for a certain interval ) - shifted backwards by an average time interval ( $t_{m}$ ${\ displaystyle t_ {m}}$ ) price value:

{\textit {Chikou}}_{t}=close_{t+t_{m}},

{\ displaystyle {\ textit {Chikou}} _ {t} = close_ {t + t_ {m}},}

Where $close_{t+t_{m}}$ ${\ displaystyle close_ {t + t_ {m}}}$ - closing price at time $t+t_{m}$ ${\ displaystyle t + t_ {m}}$ .

Cloud

Kumo ( Jap. 雲 - cloud ) - the gap between Senkou A and Senkou B, showing market volatility.

The cloud on the graph usually appears in different colors:

Blue if Senkou B is above Senkou A.
Red if Senkou A is above Senkou B.

It is believed that if the price is in the cloud, the sideways trend prevails.

Trading Strategies

Tenkan and Kijun intersection

The Golden Cross is a buy signal (opening a long position) when Tenkan crosses Kijun upwards.
“Dead Cross” is a sell signal (opening a short position) when Tenkan crosses Kijun from top to bottom.

Crossing Senkou A and Senkou B

When crossing Senkou A from the bottom up, Senkou B should look for buying opportunities.
When crossing Senkou A from top to bottom, Senkou B should look for selling opportunities.

Intersection of the price chart and Ishimoku indicator lines

When the price chart crosses the Ishimoku indicator lines from bottom to top, you should look for an opportunity to buy.
When the price chart crosses the Ishimoku indicator lines from top to bottom, you should look for an opportunity to sell.

Three line signal

The alignment of the Ichimoku indicator lines in a hierarchical sequence: the price chart, Tenkan, Kijun, Kumo is proposed to be interpreted from top to bottom as a missed signal of the beginning of a growing trend.

Chikou Signals

If Chikou crosses the price chart from bottom to top, this is a buy signal and vice versa.

Features

Goichi Hosoda recommended analyzing the signals given by his indicator in close connection with the information given by the candles , using either a candle chart or a Kagi chart .

Notes

↑ ¹ ² Indicator Ishimoku as the basis of the trading system / NP " Forex Club ". - M .: Forex Club, 2004. - 96 p. - (School of currency traders) - ISBN 5-902099-08-0 .
↑ Kumotrader Ichimoku Wiki (English) .
Introduction An Introduction To Ichimoku Charts In Forex Trading (Eng.) .

[Ichimoku.Forex.Club-1] ¹ ² Indicator Ishimoku as the basis of the trading system / NP " Forex Club ". - M .: Forex Club, 2004. - 96 p. - (School of currency traders) - ISBN 5-902099-08-0 .

[ichimoku_wiki-2] Kumotrader Ichimoku Wiki (English) .

[investopedia.com_ichimoku-3] Introduction An Introduction To Ichimoku Charts In Forex Trading (Eng.) .