Ichimoku Kinko Hyo

Quick Description
Ichimoku Kinko Hyo is a purpose-built
purpose
trend trading charting system that has been
successfully used in nearly every tradable market. It is unique in many ways, but its
primary strength is its use of multiple data points to give the trader a deeper, more
comprehensive view into price action. This deeper view, and the fact that Ichimoku is
a very visual system, enables the trader to quickly discern and filter
filter "at a glance" the
low-probability
probability trading setups from those of higher probability.

History
The charting system of Ichimoku Kinko Hyo was developed by a Japanese
newspaper man named Goichi Hosoda.
Hosoda. He began developing this system before
World War II with the help of numerous students that he hired to run through the
optimum formulas and scenarios - analogous to how we would use computer
simulated back testing today to test a trading system. The system itself was finally
released to the public in 1968, after more than twenty years of testing, when Mr.
Hosoda published his book which included the final version of the system.
Ichimoku Kinko Hyo has been used extensively in Asian trading rooms since Hosoda
published his book and has been used successfully to trade currencies,
commodities, futures, and stocks. Even with such wild popularity in Asia, Ichimoku
did not make its appearance in the West until the 1990s and then, due to the utter
lack of information in English on how to use it, it was mostly releg
relegated to the
category of another "exotic" indicator by the general trading public. Only now, in the
early 21st century, are western traders really beginning to understand the power of
this charting system.

Equilibrium at a Glance
The name Ichimoku Kinko Hy
Hyo,
o, which translates to "Equilibrium chart at a glance"
aptly, describes the system and how it is to be used, as described below:

While Ichimoku utilizes five separate lines or components, they are not to be
used individually, in isolation, when making trading
trading decisions, but rather used
together to form an integrated "whole" picture of price action that can be
gleaned "at a glance". Thus, a simple look at an Ichimoku chart should
provide the Ichimoku practitioner with a nearly immediate understanding of
sentiment,
ntiment, momentum and strength of trend.

Price action is constantly measured or gauged from the perspective of

whether it is in relative equilibrium or disequilibrium. Hosoda strongly believed
that the market was a direct reflection of human group dynamics
dynamics or behavior.
He felt that human behavior could be described in terms of a constant cyclical
movement both away from and back towards equilibrium in their lives and
interactions. Each of the five components that make up Ichimoku provides its
own reflection
n of this equilibrium or balance.
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The Ichimoku chart is composed of five (5) separate indicator lines. These lines work
together to form the complete "Ichimoku picture". A summary of how each line is
calculated is outlined below:
TENKAN SEN ("turning line")
(HIGHEST HIGH + LOWEST LOW)/2 for the past 9 periods
Learn more
KIJUN SEN ("standard line")
(HIGHEST HIGH + LOWEST LOW)/2 for the past 26 periods
Learn more
CHIKOU SPAN ("lagging line")
CURRENT CLOSING PRICE time-shifted
time
backwards (into the past) 26 periods
Learn more
SENKOU SPAN A ("1st leading line")
(TENKAN SEN + KIJUN SEN)/2 time-shifted
time
forwards (into the future) 26 periods
Learn more
SENKOU SPAN B ("2nd leading line")
(HIGHEST HIGH + LOWEST LOW)/2 for the past 52 periods time-shifted
shifted forwards
(into the future) 26 periods
Learn more
The senkou span A and B deserve special mention here as they, together, form the
Ichimoku "kumo" or cloud. We cover the kumo and its myriad functions in more detail
in the section "The kumo".
The chart below (FIGURE I) provides a visual representation of each of these five
components:

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FIGURE I - Ichimoku Components

Ichimoku Settings
As you can see in the Ichimoku Components section above, each line calculation
has one and sometimes two different settings based on the number of periods
considered. After much research and back testing, Goichi Hosoda finally determined
that the settings of 9, 26 and 52 were the ideal settings for obtaining optimum results
with Ichimoku. He derived the number 26 from what was then the
the standard Japanese
business month (which included Saturdays). The number 9 represents a week and a
half and the number 52 represents two months.
The standard settings for an Ichimoku Kinko Hyo chart are 9, 26, and 52.
There is some debate around whether
whether or not these settings of 9, 26, and 52 are still
valid given that the standard work month here in the West does not include
Saturdays. In addition, in non-centralized
non centralized markets that do not keep standard
business hours like the Forex (which trades around the
the clock) some have posited
that there may be more appropriate settings. Nevertheless, we at Boersma & Hunt,
as well as most other professional Ichimoku traders, agree that the standard settings
of 9, 26, and 52 work extremely well and do not need to be altered.
alt
The argument could be made that, since Ichimoku Kinko Hyo functions as a finely
finelytuned, integrated whole, changing the settings to something other than the standard
could throw the system out of balance and introduce invalid signals.
Thus, for the purposes of describing Ichimoku Kinko Hyo within this wiki, it will be
assumed that the standard settings are being used.

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Ichimoku components
Tenkan Sen
The Tenkan Sen, as we have already mentioned in our Introduction section, is
calculated in the following manner:
TENKAN SEN ("turning line")
(HIGHEST HIGH + LOWEST LOW)/2 for the past 9 periods
While many may compare the Tenkan Sen to a simple 9 period simple moving
average (SMA), it is quite different in the sense that it measures the average of
price's highest high and lowest low for the last 9 periods. Hosoda believed that using
the average of price extremes over a given period of time was a better measure of
equilibrium than merely using an average of the closing price. This study of the
Tenkan Sen will provide us with our first foray into the key aspect of equilibrium that
is so prevalent in the Ichimoku Kinko Hyo charting system.
Consider the chart in Figure I below:

FIGURE I - Tenkan Sen vs. 9 Period SMA

As can be seen in the chart, the Tenkan Sen often exhibits "flattening" whereas the 9
period SMA does not. This is due to the fact that the Tenkan Sen uses the average
of the highest high and lowest low rather than an average of the closing price. Thus,
during periods of price ranging, the
the Tenkan Sen will clearly show the midpoint of the
range via its flat aspect.
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When the Tenkan Sen is flat, it essentially indicates a trendless condition over the
last 9 periods.
It can also be seen how the Tenkan Sen provides a much more accurate level of
price support than does the 9 period SMA. With only one exception, price action
stayed above the Tenkan Sen in the three highlighted areas of the chart, while price
broke below the SMA numerous times. This is due to the more conservative manner
in which the Tenkan Sen is calculated, which makes it less reactive to small
movements in price. On a bearish chart, the Tenkan Sen will likewise act as a level
of resistance.
The angle of the Tenkan Sen can also give us an idea of the relative momentum of
price movements over the last 9 periods. A steeply angled Tenkan Sen will indicate a
nearly vertical price rise over a short period of time or strong momentum, whereas a
flatter Tenkan Sen will indicate lower momentum or no momentum over that same
time period.
The Tenkan Sen and the Kijun Sen both measure the shorter
shorter-term
term trend. Of the two,
the Tenkan Sen is the "fastest" given that it measures trend over the past 9 periods
as opposed to the Kijun Sen.s 26 periods. Thus, given the very short term nature of
the Tenkan Sen, it is not as reliable an indicator of trend as many other components
of Ichimoku. Nevertheless, price breaching the Tenkan Sen can give an early
indication of a trend change,
change, though, like all Ichimoku signals, this should be
confirmed by the other
ther Ichimoku components before making any trading decision.
One of the primary uses of the Tenkan Sen is vis
vis--vis
vis its relation to the Kijun Sen. If
the Tenkan Sen is above the Kijun Sen, then that is a bullish signal. Likewise, if the
Tenkan Sen is below
w the Kijun Sen, then that is bearish. The crossover of these two
lines is actually a trading signal on its own, at topic that is covered in more detail in
our Ichimoku Trading Strategies section.
Discuss this!

Kijun Sen
The kijun Sen is calculated in the following manner:

KIJUN SEN ("standard line")

(HIGHEST HIGH + LOWEST LOW)/2 for the past 26 periods
The Kijun Sen is one of the true "workhorses" of Ichimoku Kinko Hyo and it has
myriad applications. Like its brother, the Tenkan Sen,, the Kijun Sen measures the
average of price's highest high and lowest low
low,, though it does so over a longer time
frame of 26 periods as opposed to the Tenkan sins 9 periods. The Tenkan Sen thus
provides us with all the information the Tenkan Sen does, just
just on a longer time
frame.

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Due to the longer time period it measures, the Kijun Sen is a more reliable indicator
of short-term
term price sentiment, strength and equilibrium than the tenkan sen. If price
has been ranging, then the Kijun Sen will reflect the vertical
vertical midpoint of that range
(price equilibrium) via its flat aspect. Once price exceeds either the last highest high
or lowest low within the last 26 periods, however, the Kijun Sen will reflect that by
either angling up or down, respectively. Thus, short-term
shor term trend can be measured by
the direction of the Kijun Sen. In addition; the relative angle of the Kijun Sen will
indicate the strength or momentum of the trend.
Price equilibrium is expressed even more accurately in the Kijun Sen than in the
tenkan sen,
en, given the longer period of time it considers. Thus, the Kijun Sen can be
relied upon as a significant level of price support and resistance (see highlighted
areas in Figure II below).

FIGURE II - Kijun Sen Support

Price tends to move alternately away from and back toward the Kijun Sen in a
cyclical fashion due to the Kijun Sen.s strong expression of equilibrium or stasis.
Thus, when price momentum is extreme and price moves rapidly up or down over a
short period of time, a certain "rubber band" effect can be observed on price by the
kijun sen, attracting price back towards itself and bringing it back to equilibrium. An
analogy could be made between how price interacts with the Kijun Sen and how
electricity always seeks to return to ground or zero potential. The "ground" in this
case is the Kijun Sen and price will always seek to return to that level. This
phenomenon is particularly evident when the Kijun Sen is flat or trendless, as can be
seen in Figure III below:
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FIGURE III - Kijun Sen "Rubber Band" Effect

Given the dynamics of the Kijun Sen outlined above, traders can use the Kijun Sen
effectively as both a low-risk
risk point of entry as well as a solid stop loss. These two
tactics are employed extensively in both the kijun sen cross as wellll as the tenkan
sen/kijun sen cross strategies which are covered in greater detail in our Ichimoku
Trading Strategies section.
Discuss this!
Chikou Span
The Chikou span is calculated in the following manner:
CHIKOU SPAN ("lagging line")
CURRENT CLOSING PRICE time-shifted
time
backwards (into the past) 26 periods
The Chikou Span represents one of Ichimoku's most unique features; that of time
timeshifting certain lines backwards or forwards in order to gain a clearer perspective of
price action. In the Chikou Spans case, the current closing price is time
time-shifted
backwards by 26 periods. While the rationale behind this may at first appear
confusing, it becomes very clear once we consider that it allows us to quickly see
how today's price action comp
compares
ares to the price action of 26 periods ago, which can
help determine trend direction.
If the current close price (as depicted by the Chikou Span) is lower than the price of
26 periods ago, that would indicate that there is a potential for more bearish pri
price
action to come, since price tends to follow trends. Conversely, if the current closing
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price is above the price of 26 periods ago, that would then indicate the possibility for
more bullish price action to follow.
Consider the charts in Figures IV and V below:

FIGURE IV - Chikou Span in Bullish Configuration

FIGURE V - Chikou Span in Bearish Configuration

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In addition to providing us with another piece of the "trend puzzle", the Chikou span
also provides clear levels of support and resistance, given that it represents prior
closing prices. Ichimoku practitioners can thus draw horizontal lines across the
points created by the Chikou span to see these key levels and utilize them in their
analysis and trading decisions (see Figure VI below).

FIGURE VI - Chikou Span Support and Resistance Levels

Discuss this!
Senkou Span A
The Senkou Span A is calculated in the following manner:
SENKOU SPAN A ("1st leading line")
(TENKAN SEN + KIJUN SEN)/2 time-shifted
time
forwards (into the future) 26 periods
The Senkou Span A is best-known
known for its part, along with the Senkou Span B line, in
forming the kumo,, or "Ichimoku cloud" that is the foundation of the Ichimoku Kinko
Hyo charting system. The Senkou Span A is another one of the timetime-shifted lines
that are unique to Ichimoku. In this case, it is shifted forwards by 26 periods. Since it
represents the average of the Tenkan Sen and Kijun Sen, the Senkou Span A is
itself a measure of equilibrium. Goichi Hosoda knew well that price tends to respect
prior support and resistance levels, so by time
time-shifting
shifting this line forward by 26 periods
he allowed the Ichimoku practitioner to quickly see "at a glance" where support and
resistance from 26 periods ago (1 month ago on a Daily chart) reside compared with
current price action.
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While it is possible to trade off of the Senkou Span A and B lines on their own
own, their
real power comes in their combined dynamics in the kumo.
Discuss this!
Senkou Span B
The Senkou Span B is calculated in the following manner:
SENKOU SPAN B ("2nd leading line")
(HIGHEST HIGH + LOWEST LOW)/2 for the past 52 periods time-shifted
shifted forwards
(into the future)26 periods
The Senkou Span B is best-known
known for its part, along with the Senkou Span A line, in
forming the kumo,, or "Ichimoku cloud" that is the foundation of the Ichimoku Kinko
Hyo charting system. On its own, the Senkou Span B line represents the longestlongest
term view of equilibrium in the Ichimoku Kinko Hyo system. Rather than considering
only the last 26 periods in its calculation like the Senkou
Senkou Span A, the senkou span B
measures the average of the highest high and lowest low for the past 52 periods. It
then takes that measure and time-shifts
time shifts it forward by 26 periods, just like the Senkou
Span A. In Hosoda's original implementation, the Senkou Span B would thus
represent price equilibrium for the prior two (2) month period, shifted ahead of
current price by one (1) month. This convention allows Ichimoku practitioners to see
this longer term measure of equilibrium ahead of current price action, allowing
allowing them
to make informed trading decisions.

The Kumo
The Basics
The Kumo is the very "heart and soul" of the Ichimoku Kinko Hyo charting system.
Perhaps the most immediately visible component of Ichimoku, the Kumo ("cloud" in
Japanese) enables one to immediately distinguish the prevailing "big picture" trend
and price's relationship to that trend. The kumo is also one of the most unique
aspects of Ichimoku Kinko Hyo as it provides a deep, multi-dimensional
multi dimensional view of
support and resistance as opposed to
t just a single, uni-dimensional
dimensional level as provided
by other charting systems. This more encompassing view better represents the way
in which the market truly functions, where support and resistance is not merely a
single point on a chart, but rather areas that expand and contract depending upon
market dynamics.
The Kumo itself is comprised of two lines, the Senkou Span A and the Senkou Span
B.. Each of these two lines provides its own measure of equilibrium and together they
form the complete view of longer-term
longer term support and resistance. Between these two
lines lies the Kumo "cloud" itself, which is essentially a space of "no trend" where
price equilibrium can make price action unpredictable and volatile.

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Trading within the Kumo is not a recommended practice, as its trendless nature
creates a high degree of uncertainty.
Discuss this!

A Better Measure of Support and Resistance

As mentioned earlier, one of the Kumos most unique aspects is its ability to provide
a more reliable view of support and resistance than that provided by other charting
systems. Rather than providing a single level for S&R, the Kumo expands and
contracts with historical price action to give a multi-dimensional
multi dimensional view of support and
resistance. At times the Kumo's ability to forecast support
support and resistance is nothing
short of eerie, as can be seen in the chart below (Figure I) for USD/CAD, where price
respected the kumo boundaries on five separate occasions over a 30-day
30 day span.

FIGURE I - Kumo Support & Resistance

The power of the Kumo becomes even more evident when we compare traditional
support and resistance theory to Ichimoku's more comprehensive view of support
and resistance via the Kumo.
In the chart for Figure II below, we have added a traditional down trend line ((A) and a
traditional
tional resistance line at 1.1867 (B).
( ). Price managed to break and close above
both the down trend line and the single resistance level at point C.. Traditional S&R
traders would take this as a strong signal to go Long this pair at that point. A savvy
Ichimoku
u practitioner, on the other hand, would take one look at price's location just
below the bottom edge of the Kumo and would know that going long at that point is
extremely risky given the strong resistance presented by the Kumo. Indeed, price did

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bounce offf of the Kumo and dropped approximately 250 pips, which would have
most likely eradicated the long position of the traditional S&R trader.

Frustrated by his last losing trade, the traditional S&R trader spots another chance to
go long, as he sees price break
reak and close above the prior swing high at point D.
D The
Ichimoku trader only sees price trading in the middle of the kumo, which he knows is
a trendless area that makes for uncertain conditions. The Ichimoku trader is also
aware that the top boundary of the Kumo, the Senkou Span B, is close at hand and
may present considerable resistance, so he again leaves this dubious long trade to
the traditional S&R trader as he awaits a better trade opportunity. Lo and behold,
after meeting the Kumo boundary and making
making a meager 50 pips, the pair drops like a
stone nearly 500 pips.
The example given above illustrates how Ichimoku's multi-dimensional
multi dimensional view of
support and resistance gives the Ichimoku practitioner an "inside view" of S&R that
traditional chartists do not have. This enables the Ichimoku practitioner to select only
the most legitimate, high reward trade opportunities and reject those of dubious
quality and reward. The traditional chartist is left to "hope" that their latest breakout
trade doesn't turn into a head fake - a shaky strategy, at best.

FIGURE II - Traditional S&R Theory vs. Ichimoku Kumo

Price's Relationship to the Kumo

In its most basic interpretation, when price is trading above the kumo, that is a bullish
signal since it indicates current price is higher than the historical average. Likewise, if
price is trading below the Kumo that indicates that bearish sentiment is sstronger. If
price is trading within the kumo that indicates a loss of trend since the space
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between the Kumo boundaries is the ultimate expression of equilibrium or stasis.

The informed Ichimoku practitioner will normally first consult price's relationship to
the Kumo in order to get their initial view on a chart's sentiment. From a trading
perspective, the Ichimoku chartist will also always wait for price to situate itself on
the correct side of the Kumo (above for long trades and below for short trades) on
o
their chosen execution time frame before initiating any trades. If price is trading
within the Kumo, then they will wait to make any trades until it closes above/below
the Kumo.

Kumo Depth
As you will see upon studying an Ichimoku chart, the Kumo's depth or thickness can
vary drastically. The depth of the kumo is an indication of market volatility, with a
thicker Kumo indicating higher historical volatility and a thinner one indicating lower
volatility. To understand this phenomenon, we need to keep in mind what the two
lines that make up the Kumo, the senkou span A and the senkou span B,
B represent.
The senkou span A measures the average of the Tenkan Sen and kijun Sen, so its
"period" is between 9 and 26 periods, since those are the two periods that the
Tenkan Sen and Kijun Sen measure, respectively. The senkou span B line, on the
other hand, measures the average of the highest high and lowest low price for the
past 52 periods. Thus, the Senkou Span A is essentially the "faster" line of the two,
since it measures a shorter period of equilibrium.
Consider the chart in Figure III below. For the previous 52 periods, price made a total
range of 793 pips (from a high of 1.2672 to a low of 1.1879) The midpoint or average
of this range is 1.2275 and that is thus the value of the Senkou Span B. This value is
then time-shifted
shifted forwards by 26 periods so that it stays in front of current price
action. The Senkou Span A is more reactive to short-term
short term price action and thus is
already reflecting the move of price back
back up from its low of 1.1879 in its positive
angle and the gradually thinning Kumo. The Senkou Span B, on the other hand, is
actually continuing to move down as the highest high of the last 52 periods continues
to lower as it follows the price curve's move down from the original high of 1.2672. If
price continues to raise, the Senkou Span A and B will switch places and the Senkou
Span A will cross above the Senkou Span B in a so-called
so
Kumo twist".

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FIGURE III - The Kumo and its Calculations

The Kumo expands
pands and contracts based on market volatility. With greater volatility
(i.e. where the price of a given currency pair changes direction dramatically over a
short period of time), the faster Senkou Span A will travel along in relative uniformity
with the price
rice curve while the slower Senkou Span B will lag significantly given that it
represents the average of the highest high and lowest low over the past 52 periods.
Thicker Kumos are thus created when volatility increases and thinner ones are
created when volatility
olatility decreases.
Kumo depth or thickness is a function of price volatility
From a trading perspective, the thicker the Kumo, the greater support/resistance it
will provide. This information can be used by the Ichimoku practitioner to fine tune
their risk management and trading strategy. For example, they may consider
increasing their position size if their Long entry is just above a particularly thick
Kumo, as the chances of price breaking back below the Kumo is significantly less
than if the Kumo were
e very thin. In addition, if they are already in a position and price
is approaching a very well-developed
developed Kumo on another time frame, they may choose
to either take profit at the Kumo boundary or at least reduce their position size to
account for the risk associated with the thicker Kumo.
In general, the thicker and well-developed
well developed a Kumo is, the greater the
support/resistance it will provide.

Kumo Sentiment
In addition to providing a view of sentiment vis--vis
vis vis its relationship with price, the
Kumo itselff also has its own "internal" sentiment or bias. This makes sense when we
consider that the Kumo is made up of essentially two moving averages, the Senkou
Span A and the Senkou Span B. When the Senkou Span A is above the Senkou
Span B, the sentiment is bullish
lish since the faster moving average is trading above the
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slower. Conversely, when the Senkou Span B is above the Senkou Span A, the
sentiment is bearish.
This concept of Kumo sentiment can be seen in Figure IV below:

FIGURE IV - Kumo Sentiment

When the Senkou Span A and B switch places this indicates an overall trend change
from this longer-term
term perspective. Ichimoku practitioners thus keep an eye on the
leading Kumo's sentiment for clues about both current trend as well as any upcoming
trend changes.
anges. The "Senkou Span cross" is an actual trading strategy that utilizes
this Kumo twist as both an entry as well as a continuation or confirmation signal.
More on this strategy is covered in our Ichimoku Trading Strategies section.

Flat Top/Bottom Kumos

s
The flat top or bottom that is often observed in the Kumo is key to understanding one
piece of the Kumos "equilibrium equation". Just like the "rubber band effect" that a
flat kijun sen can exert on price, a flat Senkou Span B can act in the same way,
attracting price that is in close proximity. The reason for this is simple: a flat Senkou
Span B represents the midpoint of a trendless price situation over the prior 52
periods - price equilibrium. Since price always seeks to return to equilibrium, and the
th
flat Senkou Span B is such a strong expression of this equilibrium, it becomes an
equally strong attractor of price.
In a bullish trend, this flat Senkou Span B will result in a flat bottom Kumo and in a
bearish trend it will manifest as a flat top Kumo.
Kumo. The Ichimoku practitioner can use
this knowledge of the physics of the flat Senkou Span B in order to be more cautious
about both their exits out of the Kumo. For instance, when exiting a flat bottom
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(bullish) Kumo from the bottom, rather than merely placing

placing an entry order 10 pips
below the Senkou Span B, savvy Ichimoku practitioners will look for another point
around which to build their entry order to ensure they don't get caught in the flat
bottom's "gravitational pull". This method minimizes the number
number of false breakouts
experienced by the trader.
See the highlighted areas in the chart for Figure V below for an example of flat top
and bottom kumos:

FIGURE V - Flat Top and Flat Bottom Kumos

Trend Trading
Definition
"Trend following is an investment strategy that takes advantage of longlong-term moves
that play out in various markets. Traders who use this approach can use current
market price calculation, moving averages and channel breakouts to determine the
general direction of the market and to generate trade signals. This approach is
reactive, diversified, long-term,
term, and systematic by nature. Traders who subscribe to
a trend following strategy do not aim to forecast or predict markets or price levels;
they simply jump on the trend and ride it."
i
- Definition of trend following from Wikipedia

Ichimoku Kinko Hyo and Trend Trading

It must be understood by any who wishes to use the power of Ichimoku Kinko Hyo
that it is, first and foremost, a trend trading system.. It is further assumed that the
trader wielding Ichimoku does so with a solid understanding of the basic tenets of
trend trading. This is a key assumption, since knowledge of how to trade the trend is
Page 16 of 33

absolutely critical to long-term

term success with Ichimoku.
Ichimoku. Ichimoku on its own will not
teach one the underlying philosophy of trend following, so we must make a special
mental note at this point regarding the key factors involved in successful trend
trading.
Trend traders:

NEVER attempt to predict where the market will go

NEVER attempt to pick "tops" and "bottoms" of price action

ALWAYS respect the trend and align their trades accordingly

Let the market tell them when the trend is finished, not their "intuition"

Realize that they will necessarily sacrifice some

some pips at the beginning
and end of a trend as they wait for confirmation that the trend beginning
and end are authentic

Look at price action from a long

long-term
term perspective and don't get shaken
by volatility

Understand that they will go through some potentially

potentially significant but
temporary periods of drawdown as the trend matures

Understand that trend trading can lead to large gains but also equally
large losses

Understand that trends can take place on multiple time frames

Profitable trend trading is 99% mental. If one can conquer their mind and quell the
inevitable inner dialogue that screams "Whoa! Looks like price is going against your
position! The trend must be ending - SELL NOW!!" and keep their eyes on the long
term, they stand an excellent chance at being a successful, happy and stress-free
stress
trend trader. However, if they cannot turn off this inner dialogue or at least ignore it
and keep their focus on the long-term,
long term, then they are in for a very short, very bumpy
ride as a Forex trader.
As a charting system that is purpose-built
purpose built for trend trading, Ichimoku Kinko Hyo can
provide the savvy practitioner with a much deeper view of the trend and therefore,
more secure entry and exit signals than any other trend trading system available.
Nevertheless, it must be combined
ombined with the proper mindset in order to be used to its
full potential.

Ichimoku trading strategies

READ THIS FIRST!
Ichimoku is a finely-tuned,
tuned, integrated charting system where the five lines all work in
concert to produce the end result. We emphasize the word "system" here because it
is absolutely key to understanding how to use the various trading strategies we
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outline in this section. Every strategy covered below is to be

be used and measured
against the prevailing Ichimoku "picture" rather than in isolation. This means that,
while a scenario that matches a given strategy may have transpired, you still must
weigh that signal against the rest of the chart in order to determine
determine whether or not it
offers a high-probability
probability trade. Another way of looking at it is that Ichimoku is a
system and the discrete strategies for trading it are merely "sub-systems"
"sub systems" within that
larger system. Thus, looking at trading any of these strategies from
from an automated or
isolated approach that doesn't take into account the rest of what the Ichimoku chart
is telling you will meet with mixed long-term
long
success, at best.
Don't misinterpret the message; the strategies outlined below are very powerful and
can
n bring consistent results if used wisely - which is within the scope of the larger
Ichimoku picture. We ask that you always keep this in mind when employing these
strategies.
If you are interested in discussing these trading strategies in more detail wit
with both
the authors and other Ichimoku traders, please visit the Kumo Trader Ichimoku
Forum.

Tenkan Sen/Kijun Sen Cross

The tenkan Sen/Kijun Sen cross is one of the most traditional trading strategies
within the Ichimoku Kinko Hyo system. The signal for this
this strategy is given when the
tenkan sen crosses over the kijun sen.. If the Tenkan Sen crosses above the Kijun
Sen, then it is a bullish signal. Likewise, if the Tenkan Sen crosses below the Kijun
Sen, then that is a bearish signal. Like all strategies within
within the Ichimoku system, the
Tenkan Sen/Kijun Sen cross needs to be viewed in terms of the bigger Ichimoku
picture before making any trading decisions, as this will give the strategy the best
chances of success.
In general, the Tenkan Sen/Kijun Sen strategy can be classified into three (3) major
classifications: strong, neutral and weak.
STRONG TENKAN SEN/KIJUN SEN CROSS SIGNAL
A strong Tenkan Sen/Kijun Sen cross Buy Signal takes place when a bullish cross
happens above the Kumo.
A strong Tenkan Sen/Kijun
n/Kijun Sen cross Sell Signal takes place when a bearish cross
happens below the Kumo.
NEUTRAL TENKAN SEN/KIJUN SEN CROSS SIGNAL
A neutral Tenkan Sen/Kijun Sen Buy signal takes place when a bullish cross
happens within the Kumo.
A neutral Tenkan Sen/Kijun Sen cross Sell signal takes place when a bearish cross
happens within the Kumo.

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WEAK TENKAN SEN/KIJUN SEN CROSS SIGNAL

A weak Tenkan Sen/Kijun Sen cross Buy signal takes place when a bullish cross
happens below the Kumo.
A weak Tenkan Sen/Kijun
n Sen cross Sell signal takes place when a bearish cross
happens above the Kumo.
See the chart in Figure I below for an example of several classifications of the tenkan
sen/kijun sen cross:

FIGURE I - Tenkan Sen/Kijun Sen Cross Classifications

But wait! Have you checked the Chikou span?

With these three major classifications in mind, we will add something else into the
equation - the Chikou span.. As we explained in the section detailing the Chikou
span,, this component acts as a "final arbiter" of sentiment
sentiment and should be consulted
with every single trading signal in the Ichimoku Kinko Hyo charting system. The
Tenkan Sen/Kijun Sen cross is no different. Each of the three classifications of the
Tenkan Sen/Kijun Sen cross mentioned above can be further classified
classified based on the
Chikou Span's location in relation to the price curve at the time of the cross. If the
cross is a "Buy" signal and the Chikou Span is above the price curve at that point in
time, this will add greater strength to that buy signal. Likewise,
Likewise, if the cross is a "Sell"
signal and the Chikou Span is below the price curve at that point in time, this will
provide additional confirmation to that signal. If the Chikou Span's location in relation
to the price curve is the opposite of the Tenkan Sen/Kijun Sen cross sentiment, then
that will weaken the signal.

Page 19 of 33

Entry
The entry for the Tenkan Sen/Kijun Sen cross is very straightforward - an order is
placed in the direction of the cross once the cross has been solidified by a close.
Nevertheless, in accordance with good Ichimoku trading practices, the trader should
bear in mind any significant levels of support/resistance near the cross and consider
getting a close above those levels before executing their order.

Exit
The exit from a Tenkan Sen/Kijun
Sen/Kijun Sen cross will vary with the particular
circumstances of the chart. The most traditional exit signal is a Tenkan Sen/Kijun
Sen cross in the opposite direction of your trade. However, personal risk
management and time frame concerns may dictate an earlier exit, or an exit based
upon other Ichimoku signals, just as in any other trade.

Stop-Loss Placement
The tenkan sen/kijun sen strategy does not dictate use of any particular Ichimoku
structure for stop-loss
loss placement, like some other strategies do. Instead,
Instead, the trader
should consider their execution time frame and their money management rules and
then look for the appropriate prevailing structure for setting their stop-loss.
stop loss.

Take Profit Targets

Take profit targeting for the Tenkan Sen/Kijun Sen cross strategy
strategy can be approached
in one of two different ways. It can be approached from a day/swing trader
perspective where take profit targets are set using key levels, or from a position
trader perspective, where the trader does not set specific targets but rath
rather waits for
the current trend to be invalidated by a Tenkan Sen/Kijun Sen cross transpiring in
the opposite direction of their trade.

Case Study
In the 4H chart in Figure II below we can see a bullish Tenkan Sen/Kijun Sen cross
at point A. Since this cross
ss took place within the Kumo itself, it is considered a
"neutral" buy signal, thus we wait for price to exit and close above the Kumo to
confirm this sentiment before placing our long entry. Price does achieve a close
above the Kumo at point B (1.5918) and
and we place our long entry at that point. For
our stop-loss,
loss, we look for the place where our trade sentiment would be invalidated.
In this case, the bottom edge of the Kumo provides us with just that at point C
(1.5872).
Once we place our entry and stop-loss
stop ss orders, we merely wait for the trade to unfold
while keeping an eye out for potential exit signals. Price rises nicely for the next 10 to
11 days and then, on the 15th day of the trade, price drops enough to have the
Tenkan Sen/Kijun Sen cross below the Kijun Sen at point D.. This is our exit signal,
since Ichimoku is telling us that the sentiment has changed, so we close our order at
1.6014 at point E for a total gain of over 95 pips.

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FIGURE II - Tenkan Sen/Kijun Sen Cross Case Study

For maximum risk management on this trade, we also could have moved our stopstop
loss up with price once price was a conservative distance away from our entry. One
option for doing this would be to move the stop-loss
stop loss up with the Kumo, keeping it just
below the bottom edge. Forr even tighter risk management, we could have moved our
stop-loss
loss with the Kijun Sen, keeping it 5 to 10 pips below that line as it moved up.

Kijun Sen Cross

The Kijun Sen cross is one of the most powerful and reliable trading strategies within
the Ichimoku Kinko Hyo system. It can be used on nearly all time frames with
excellent results, though it will be somewhat less reliable on the lower, day trading
time frames
rames due to the increased volatility on those time frames. The Kijun Sen cross
signal is given when price crosses over the kijun sen.. If it crosses the price curve
from the bottom up, then it is a bullish signal. If it crosses from the top down, then it
iss a bearish signal. Nevertheless, like all trading strategies within the Ichimoku Kinko
Hyo system, the Kijun Sen cross signal needs to be evaluated against the larger
Ichimoku "picture" before committing to any trade.
In general, the Kijun Sen cross strategy
strategy can be classified into three (3) major
classifications: strong, neutral and weak.
STRONG KIJUN SEN CROSS SIGNAL
A strong Kijun Sen cross Buy signal takes place when a bullish cross happens above
the Kumo.
A strong kijun sen cross Sell signal takes place
place when a bearish cross happens below
the Kumo.
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NEUTRAL KIJUN SEN CROSS SIGNAL

A neutral Kijun Sen cross Buy signal takes place when a bullish cross happens
within the Kumo.
A neutral Kijun Sen cross Sell signal takes place when a bearish cross happens
within the Kumo.
WEAK KIJUN SEN CROSS SIGNAL
A weak Kijun Sen cross Buy signal takes place when a bullish cross happens below
the Kumo.
A weak Kijun Sen cross Sell signal takes place when a bearish cross happens above
the Kumo.
See the chart in Figure III below for an example of several classifications of the Kijun
Sen cross:

FIGURE III - Kijun Sen Cross Classifications

Chikou Span confirmation

As with the tenkan sen/kijun sen cross strategy, the savvy Ichimoku trader will make
good use of the Chikou span to confirm any Kijun Sen cross signal. Each of the three
classifications of the Kijun Sen cross outlined above can be further classified based
on the Chikou Span's location in relation to the price curve at the time of the cross. If
the cross iss a "Buy" signal and the Chikou Span is above the price curve at that point
in time, this will add greater strength to that buy signal. Likewise, if the cross is a
"Sell" signal and the Chikou Span is below the price curve at that point in time, this
Page 22 of 33

will provide additional confirmation to that signal. If the Chikou Span's location in
relation to the price curve is the opposite of the Kijun Sen cross's sentiment, then
that will weaken the signal.

Entry
The entry for the Kijun Sen cross is very straightforward
straightforw
- an order is placed in the
direction of the cross once the cross has been solidified by a close. Nevertheless, in
accordance with good Ichimoku trading practices, the trader should bear in mind any
significant levels of support/resistance near the cross
cross and consider getting a close
above those levels before executing their order.

Exit
A trader exits a Kijun Sen cross trade upon their stop-loss
stop loss getting triggered when
price crossing the Kijun Sen in the opposite direction of their trade. Thus, it is key
that the trader move their stop
stop-loss
loss in lockstep with the movement of the Kijun Sen in
order to maximize their profit.

Stop-Loss Placement
The Kijun Sen cross strategy is unique among Ichimoku strategies in that the trader's
stop-loss
loss is determined and managed
managed by the Kijun Sen itself. This is due to the Kijun
Sen's strong representation of price equilibrium, which makes it an excellent
determinant of sentiment. Thus, if price retraces back below the Kijun Sen after
executing a bullish Kijun Sen cross, then
then that is a good indication that insufficient
momentum is present to further the nascent bullish sentiment.
When entering a trade upon a Kijun Sen cross, the trader will review the current
value of the Kijun Sen and place their stop-loss
stop
5 to 10 pips on the
he opposite side of
the Kijun Sen that their entry is placed on. The exact number of pips for the stop
stop-loss
"buffer" above/below the Kijun Sen will depend upon the dynamics of the pair and
price's historical behavior vis---vis the Kijun Sen as well as the risk tolerance of the
individual trader, but 5 to 10 pips should be appropriate for most situations. When
looking to enter Short, the trader will look to place their stop-loss
stop loss just above the
current Kijun Sen and when looking to enter Long, the trader will place their stop-loss
stop
just below the current Kijun Sen.
Once the trade is underway, the trader should move their stop-loss
stop loss up/down with the
movement of the Kijun Sen, always maintaining the 5 to 10 pip "buffer". In this way,
the Kijun Sen itself acts as a "trailing stop-loss"
stop loss" of sorts and enables the trader to
keep a tight hold on risk management while maximizing profits.

Take Profit Targets

Take profit targeting for the Kijun Sen cross strategy can be approached in one of
two different ways. It can be approached
approached from a day/swing trader perspective where
take profit targets are set using key levels, or from a position trader perspective,
where the trader does not set specific targets but rather waits for the current trend to

Page 23 of 33

be invalidated by price crossing

crossing back over the Kijun Sen in the opposite direction of
their trade.

Case Study
In the 1D chart in Figure IV below for USD/CHF we can see a bullish Kijun Sen cross
at point A.. While the initial cross is above the Kumo and therefore a relatively strong
cross, it is still beneath a very key Chikou Span level (not visible on this chart), so we
wait until we get a close above that key level before entering at point B.. At this poin
point,
we also have the additional benefit of confirmation from a bullish Tenkan Sen/Kijun
Sen cross and a nice upward angle to the Kijun Sen, bolstering our prospects for
more bullish price action even more. For our stop-loss,
stop loss, we follow the Kijun Sen
trading strategy guidelines and place it 10 pips below the prevailing Kijun Sen at
point C.
Once we place our entry and stop-loss
stop loss orders, we merely wait for the trade to unfold
while continually moving up our stop-loss
stop loss with the Kijun Sen. Price rises nicely for
the
he next 40 days staying well above the Kijun Sen. After this point, price begins to
drop and, on the 44th day, price crosses the Kijun Sen and hits our stop
stop-loss at
point D closing out our trade and netting us a profit of 641 pips.

FIGURE IV - Kijun Sen Cross Case Study

Kumo Breakout
Kumo Breakout trading or "Kumo Trading" is a trading strategy that can be used on
multiple time frames, though it is most widely used on the higher time frames (e.g.:
Daily, Weekly, Monthly) of the position trader. Kumo breakout trading is the purest
Page 24 of 33

form of trend trading offered by the Ichimoku charting system, as it looks solely to the
kumo and price's relationship to it for its signals. It is "big picture" trading that
focuses only on whether price is trading above or below the prevailing Kumo. In a
nutshell, the signal to go long in Kumo breakout trading is when price closes above
the prevailing Kumo and, likewise, the signal to go short is when price closes below
the prevailing Kumo.
See the chart in Figure V below for
for an example of a kumo breakout buy signal:

FIGURE V - Kumo Breakout Buy Signal

Entry
The entry for the Kumo breakout trading strategy is simple - when price closes
above/below the Kumo, the trader places a trade in the direction of the breakout.
Nevertheless,
rtheless, care does need to be taken to ensure the breakout is not a "head
fake" which can be especially prevalent when the breakout takes place from a flat
top/bottom kumo.. To ensure the flat top/bottom is not going to attract price back to
the Kumo, it is always advisable to look for another Ichimoku structure to "anchor"
your entry to just above/below the Kumo breakout. This anchor can be anything from
a key level provided by the Chikou Span, a Kumo shadow or any other appropriate
structure that could actt as additional support/resistance to solidify the direction and
momentum of the trade.
Kumo breakout traders also make good use of the leading kumo's sentiment before
committing to a trade. If the leading Kumo is a Bear Kumo and the Kumo breakout is
also Bear, then that is a very good sign that the breakout is not an aberration of
excessive volatility, but rather a true indication of market sentiment. If the leading
Kumo contradicts the direction of the breakout, then the trader may want to either

Page 25 of 33

wait until
til the Kumo does agree with the direction of the trade or use more
conservative position sizing to account for the increased risk.

Exit
The exit from a Kumo breakout trade is the easiest part of the whole trade. The
trader merely waits for their stop-loss
stop loss to get triggered as price exits the opposite side
of the Kumo on which the trade is transpiring. Since the trader has been steadily
moving their stop-loss
loss up with the Kumo during the entire lifespan of the trade, this
assures they maximize their profit and minimize their risk.

Stop-Loss Placement
Being a "big picture" trend trading strategy, the stop-loss
stop loss for the Kumo breakout
strategy is placed at the point that the trend has been invalidated. Thus, the stopstop
loss for a Kumo breakout trade must be
be placed on the opposite side of the Kumo that
the trade is transpiring on, 10 - 20 pips away from the Kumo boundary. If price does
manage to reach the point of the stop
stop-loss,
loss, the trader can be relatively assured that
a major trend change has taken place.

Take Profit Targets

While traditional take profit targets can be used with the Kumo breakout trading
strategy, it is more in-line
line with the long-term
long term trend trading approach to simply move
the stop-loss
loss up/down with the Kumo as it matures. This method allows
allows the trade to
take full advantage of the trend without closing the trade until price action dictates
unequivocally that the trend is over.

Case Study
In the Weekly chart in Figure VI below for AUD/USD we can see a bearish Kumo
breakout taking place at point A.
A. We also see that that leading Kumo is distinctly
bearish as well, which acts to confirm our breakout sentiment. Given that price is
exiting from a flat-bottom
bottom Kumo and that we want to reduce any risks of entering on
a false breakout, we look for a close below the last Chikou Span support at .7600
before entering. The close we are looking for is achieved shortly thereafter at point
B and we enter short.
For our stop-loss,
loss, we follow the Kumo breakout guideline of placing it 10 - 20 pips
away from the
e opposite side of the Kumo where our breakout is taking place. In this
case, we place it 20 pips away from the top of the Kumo above our entry candle at
point C (.7994).
Once we place our entry and stop-loss
stop loss orders, we merely wait for the trade to unfold
while continually moving our stop
stop-loss
loss down with the prevailing Kumo. Given that we
are using the Weekly chart as our execution time frame, we prepare ourselves for a
very long-term
term trade. In this case, nearly two years later, price raises enough to
break out of the Kumo to the other side, where it triggers our buy order some 20 pips
away at point D netting us over 1100 pips in the process.
Page 26 of 33

FIGURE VI - Kumo Breakout Case Study

Senkou Span Cross

The Senkou Span cross is one of the lesser known trading strategies within the
Ichimoku Kinko Hyo system. This is mostly due to the fact that the Senkou Span
cross tends to be more commonly used as an additional confirmation with other
trading strategies rather than being used as a standalone trading strategy in its own
right. However, it is nonetheless a solid trend trading strategy and can definitely be
used on its own.
Given that the Senkou Span cross strategy, like the kumo breakout trading strategy
strategy,
utilize the Kumo for signal generation, it is best employed
employed on the longer time frames
of the Daily chart and above. The Senkou Span cross signal is given when the
senkou span A line crosses over the senkou span B line of the kumo.. If the Senkou
Span A crosses the Senkou Span B from the bottom up, then it is a bullish
bullish signal. If it
crosses from the top down, then it is a bearish signal. Nevertheless, like all trading
strategies within the Ichimoku Kinko Hyo system, the Senkou Span cross signal
needs to be evaluated against the larger Ichimoku "picture" before commi
committing to any
trade.
The thing to keep in mind with the Senkou Span cross strategy is that the "cross"
signal will take place 26 periods ahead of the price action as the Kumo is timetime
shifted 26 periods into the future. This relationship is obvious when one looks at the
current price on a live chart, but less so when looking at historical price action. In
addition, while all Ichimoku strategies should be exercised with the larger Ichimoku
picture in mind, this is particularly important with the Senkou Span ccross. Thus,
determining the overall trend on higher time frames first and then taking only Senkou

Page 27 of 33

Span signals that align with that trend on the lower timeframes is the best
implementation of the Senkou Span strategy.
In general, the Senkou Span cross strategy
strategy can be classified into three (3) major
classifications: strong, neutral and weak.
STRONG SENKOU SPAN CROSS SIGNAL
A strong Senkou Span cross signal takes place when the price curve is on the side
of the Kumo that matches the sentiment of the senkou span cross.
NEUTRAL SENKOU SPAN CROSS SIGNAL
A neutral Senkou Span cross signal takes place when the price curve is inside the
Kumo at the time of the Senkou Span cross.
WEAK SENKOU SPAN CROSS SIGNAL
A weak Senkou Span cross signal takes place when the price curve is on the
opposite side of the Kumo that matches the sentiment of the Senkou Span cross.
The chart in Figure VII below shows some classifications of the Senkou Span cross.
The dashed vertical lines represent the 26
26-period
period relationship between p
price and the
Senkou Span cross. Thus, point A represents a bullish Senkou Span cross that can
be categorized as a "strong" buy signal due to the fact that price (point
(point B
B), at the
point of the cross, was trading above the Kumo. Likewise, point C represents a
bearish Senkou Span cross that generated a strong sell signal due to price's location
at point D below the Kumo. The Senkou Span cross at Point E generated a neutral
buy signal since price (point
point F)
F) was trading within the Kumo at that point.

FIGURE VII
II - Senkou Span Cross Classifications
Page 28 of 33

Entry
The entry for the Senkou Span cross trading strategy is relatively simple, though, as
mentioned above, entries do require even more attention to the overall trend on
higher time frames before executing any trades.
trades. After determining the trend on the
higher time frames, the trader looks for a fresh Senkou Span cross in the same
direction as the overall trend that has been solidified by a close on the execution
time frame. Once they identify a suitable opportunity, they initiate a position in the
direction of the Senkou Span sentiment. As in all Ichimoku trading strategies, traders
will be well-advised
advised to consider the relative strength of the cross (vis(vis--vis price's
location relative to the Kumo) as well as the sent
sentiment
iment provided by the remaining
Ichimoku components at the time of the cross in order to ensure the most optimum
entry.
It is worth mentioning here that the strong bull (buy) signal outlined in our first chart
that took place in April of 2005, while technically
technically strong from a 1D perspective, was
not aligned with the overall downtrend in-place
in place on the Weekly and Monthly charts.
Thus, traders taking this trade signal and using a Senkou Span cross in the opposite
direction as their exit signal would have actually lost pips. This underscores the
importance of evaluating sentiment on multiple time frames and trading with the
overall trend.

Exit
The exit from a Senkou Span cross trade is generally signaled by a Senkou Span
cross in the opposite direction of the trade, though other exit signals may be taken
depending upon the trader's risk tolerance and profit goals.

Stop-Loss Placement
Being a "big picture" trend trading strategy like the kumo breakout strategy, the stop
stoploss for the Senkou Span cross strategy
strategy is placed on the opposite side of the Kumo
that the trade is transpiring on, 10 - 20 pips away from the Kumo boundary.

Take Profit Targets

While traditional take profit targets can be used with the Senkou Span cross trading
strategy, it is more in-line with the long-term
long term trend trading approach to wait for a
Senkou Span cross to transpire in the opposite direction of the trade before closing
out the position. This method allows the trade to take full advantage of the trend
without closing the trade until price action dictates unequivocally that the trend is
over.

Case Study
In the Daily chart in Figure VIII below for USD/CAD we can see a bearish Senkou
Span cross at point A.. This cross corresponds to the candle at point B
B. Since the
candle closed just below
low the Kumo, the signal is considered a strong one given that
its sentiment agrees with the sentiment of the bearish Senkou Span cross. In
addition, we confirm that the direction of this signal is aligned with the overall
Page 29 of 33

downtrend in-place
place on the Weekly and Monthly time frames, so we know that we are
trading with the trend. Nevertheless, we are wary of the flat bottom kumo just to the
right of the candle, which could act as an attractor for price, so we look for a
conservative entry point that will ensure we will not get caught in any false
breakouts. The last Chikou Span support at 1.2292 looks like a good anchor point for
assuring this. Price closes below this point a couple of days later at 1.2290 and we
enter short at point C.
For our stop-loss, we follow
llow the Kumo breakout guideline of placing it 10 - 20 pips
away from the opposite side of the Kumo where our trade is taking place. In this
case, we place it 20 pips away from the top of the Kumo above our entry candle at
point D (1.2542).
Once we place our entry and stop-loss
stop loss orders, we wait for the trade to unfold while
continually moving our stop-loss
loss down with the prevailing Kumo. In this case, a bit
more than four months later, price ranging has created a fresh Senkou Span cross in
the opposite direction
tion of our trade at point E,, corresponding to the candle at point F
where we close out our trade at 1.1908, netting us over 380 pips in the process.

FIGURE VIII - Senkou Span Cross Case Study

Chikou Span Cross

For those that have been using the Ichimoku Kinko Hyo charting system for any
length of time, utilizing the Chikou Span cross strategy should be like second nature.
Why? Because the Chikou Span cross is essentially the "Chikou Span confirmation"
that savvy Ichimoku traders utilize to confirm chart sentiment before entering any
trade. This confirmation comes in the form of the Chikou Span crossing through the
price curve in the direction of the proposed trade. If it crosses through the price curve
Page 30 of 33

from the bottom

ottom up, then it is a bullish signal. If it crosses from the top down, then it
is considered a bearish signal.
Thus, we already know the power of the Chikou Span cross via its use as a
confirmation strategy. However, when used within some simple guidelin
guidelines, the
Chikou Span cross can be used as its own standalone trading strategy with very
good success.
Like many other Ichimoku trading strategies, the Chikou Span cross strategy uses
price's relationship to the kumo to categorize its signals into three (3) major
classifications: strong, neutral and weak.
STRONG CHIKOU SPAN CROSS SIGNAL
A strong Chikou Span cross Buy signal takes place when a bullish cross takes place
and current price is above the Kumo
A strong Chikou Span cross Sell signal takes place when
when a bearish cross takes
place and current price is below the Kumo.
NEUTRAL CHIKOU SPAN CROSS SIGNAL
A neutral Chikou Span cross Buy signal takes place when a bullish cross takes place
and current price is within the Kumo
A neutral Chikou Span cross Sell signal takes place when a bearish cross takes
place and current price is within the Kumo.
WEAK CHIKOU SPAN CROSS SIGNAL
A weak Chikou Span cross Buy signal takes place when a bullish cross takes place
and current price is below the Kumo
A weak Chikou
u Span cross Sell signal takes place when a bearish cross takes place
and current price is above the Kumo.
The chart in Figure IX below provides several examples of the Chikou Span cross.
Given the fact that the Chikou Span is a measure of closing price shifted
shifted 26 periods
into the past, we must always keep in mind both the location of the Chikou Span in
relation to the price curve (the "cross" itself) and the current candle and its relation to
the kumo. Thus, Point A1 is the point where the Chikou Span crossed
crossed the price
curve downward and Point A2 is the closing candle that initiated that bearish cross.
However, since the candle at Point A2 was above the prevailing Kumo at the point
of the cross, this particular signal would be categorized as a "weak" bearish
beari cross. A
strong bullish cross can be seen in Points B1 and B2 since the Chikou Span
crossed upward through the price curve and the closing candle at that point in time
was above the prevailing Kumo. Points C1 and C2 represent a weak bearish cross
given that they transpired above the prevailing Kumo.

Page 31 of 33

FIGURE IX - Chikou Span Cross Classifications

Entry
The entry for the Chikou Span cross is relatively straightforward - the trader initiates
a position in the direction of the Chikou Span cross after taking into consideration the
cross's strength and other chart signals. For the highest probability of success, the
trader will also look for the Chikou Span itself to be free of the Kumo as the Chikou
Span can often interact with the kumo much like the pr
price curve.

Exit
The most traditional exit for a Chikou Span cross trade is generally signaled by a
Chikou Span cross in the opposite direction of the trade, though other exit signals
may be taken depending upon the trader's risk tolerance and profit goals.

Stop-Loss Placement
The Chikou Span strategy does not dictate use of any particular Ichimoku structure
for stop-loss
loss placement, like some other strategies do. Instead, the trader should
consider their execution time frame and their money management rules and then
look for the appropriate prevailing structure for setting their stop-loss.
stop

Take Profit Targets

Take profit targeting for the Chikou Span cross strategy can be approached in one of
two different ways. It can be approached from a day/swing trader
trader perspective where
take profit targets are set using key levels, or from a position trader perspective,
where the trader does not set specific targets but rather waits for the current trend to
be invalidated by a Chikou Span cross transpiring in the opposite
opposite direction of their
trade.
Page 32 of 33

Case Study
In the Daily chart in Figure X below for USD/CHF we can see a bullish Chikou Span
cross at point A.. However, while it is technically a strong cross, the Chikou Span is
still below significant resistance provided by the two Chikou Span points at 1.2090.
In addition, the Tenkan Sen and Kijun Sen are in a flat configuration which doesn't
provide any additional confirmation. Thus we wait for a more convincing setup before
entering Long. This is achieved five (5) days later at Point B1 when the Chikou Span
moves back up through the price curve after a brief dip below. We wait for the daily
candle to close and then enter long at 1.2164 at Point B2.. Our confidence in this
entry is increased by the bullish Tenkan Sen/Kijun
Sen/Kijun Sen cross that has since
transpired.
For our stop-loss,
loss, we consider the prevailing structures and decide to place it just
below the Kijun Sen at 1.1956, since a cross below that point will not only have the
Chikou Span executing a fresh bearish cross, b
but
ut also have price executing a
bearish Kijun Sen cross, both of which would invalidate our long position.
Once we place our entry and stop
stop-loss
loss orders, we wait for the trade to unfold.
Depending upon our trading style, we could opt to trail our stop-loss
stop
along with the
Kijun Sen to keep a tighter rein on risk management or we could utilize the more
traditional method of waiting for a Chikou Span cross in the opposite direction of our
trade. In this case, a Chikou Span cross in the opposite direction takes place just
under two months later (Point
Point C1
C1) at 1.2619 (Point C2)) and we close out our trade
for a gain of over 450 pips. It is worth noting that, even though the Chikou Span
cross on its own would be considered technically "weak" due to its location above
the kumo, it is bolstered by a bearish Tenkan Sen/Kijun Sen cross to form a bearish
three-line
line pattern. Alternatively, if we had chosen to use the Kijun Sen as our trailing
stop in this trade, instead of waiting for a Chikou Span cross, we would have exit
exited
somewhere around the 1.2735 level, which would have netted us over 560 pips.

FIGURE X - Chikou Span Cross Case Study

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