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Contents
IntroductiontoIchimoku
QuickDescription
History
Equilibrium"AtaGlance"
IchimokuComponents
IchimokuSettings
TheFiveLinesofIchimoku
TheTenkanSen
TheKijunSen
TheChikouSpan
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TheSenkouSpanA
TheSenkouSpanB
TheKumo
TheBasics
ABetterMeasureofSupportandResistance
Price'sRelationshiptotheKumo
KumoWidth
KumoSentiment
FlatTop/BottomKumos
TrendTrading
Introduction
IchimokuKinkoHyoandTrendTrading
IchimokuTradingStrategies
READTHISFIRST!
TenkanSen/KijunSenCross
KijunSenCross
KumoBreakout
SenkouSpanCross
ChikouSpanCross
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IntroductionIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
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Introduction
Contents
1QuickDescription
2History
3EquilibriumAtaGlance
4IchimokuComponents
5IchimokuSettings
QuickDescription
IchimokuKinkoHyoisapurposebuilttrendtradingchartingsystemthathasbeensuccessfullyusedinnearlyeverytradeablemarket.Itisuniqueinmany
ways,butitsprimarystrengthisitsuseofmultipledatapointstogivethetraderadeeper,morecomprehensiveviewintopriceaction.Thisdeeperview,
andthefactthatIchimokuisaveryvisualsystem,enablesthetradertoquicklydiscernandfilter"ataglance"thelowprobabilitytradingsetupsfrom
thoseofhigherprobability.
History
ThechartingsystemofIchimokuKinkoHyowasdevelopedbyaJapanesenewspapermannamedGoichiHosoda.Hebegandevelopingthissystem
beforeWorldWarIIwiththehelpofnumerousstudentsthathehiredtorunthroughtheoptimumformulasandscenariosanalogoustohowwewoulduse
computersimulatedbacktestingtodaytotestatradingsystem.Thesystemitselfwasfinallyreleasedtothepublicin1968,aftermorethantwentyyearsof
testing,whenMr.Hosodapublishedhisbookwhichincludedthefinalversionofthesystem.
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IchimokuKinkoHyohasbeenusedextensivelyinAsiantradingroomssinceHosodapublishedhisbookandhasbeenusedsuccessfullytotrade
currencies,commodities,futures,andstocks.EvenwithsuchwildpopularityinAsia,IchimokudidnotmakeitsappearanceintheWestuntilthe1990s
andthen,duetotheutterlackofinformationinEnglishonhowtouseit,itwasmostlyrelegatedtothecategoryofanother"exotic"indicatorbythe
generaltradingpublic.Onlynow,intheearly21stcentury,arewesterntradersreallybeginningtounderstandthepowerofthischartingsystem.
EquilibriumAtaGlance
ThenameIchimokuKinkoHyo,whichtranslatesto"Equilibriumchartataglance"aptlydescribesthesystemandhowitistobeused,asdescribed
below:
WhileIchimokuutilizesfiveseparatelinesorcomponents,theyarenottobeusedindividually,inisolation,whenmakingtradingdecisions,but
ratherusedtogethertoformanintegrated"whole"pictureofpriceactionthatcanbegleaned"ataglance".Thus,asimplelookatanIchimoku
chartshouldprovidetheIchimokupractitionerwithanearlyimmediateunderstandingofsentiment,momentumandstrengthoftrend.
Priceactionisconstantlymeasuredorgaugedfromtheperspectiveofwhetheritisinrelativeequilibriumordisequilibrium.Hosodastrongly
believedthatthemarketwasadirectreflectionofhumangroupdynamicsorbehavior.Hefeltthathumanbehaviorcouldbedescribedintermsofa
constantcyclicalmovementbothawayfromandbacktowardsequilibriumintheirlivesandinteractions.Eachofthefivecomponentsthatmakeup
Ichimokuprovideitsownreflectionofthisequilibriumorbalance.
IchimokuComponents
TheIchimokuchartiscomposedoffive(5)separateindicatorlines.Theselinesworktogethertoformthecomplete"Ichimokupicture".Asummaryof
howeachlineiscalculatedisoutlinedbelow:
TENKANSEN("turningline")
(HIGHESTHIGH+LOWESTLOW)/2forthepast9periods
Learnmore
KIJUNSEN("standardline")
Learnmore
CHIKOUSPAN("laggingline")
CURRENTCLOSINGPRICEtimeshiftedbackwards(intothepast)26periods
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Learnmore
SENKOUSPANA("1stleadingline")
(TENKANSEN+KIJUNSEN)/2timeshiftedforwards(intothefuture)26periods
Learnmore
SENKOUSPANB("2ndleadingline")
(HIGHESTHIGH+LOWESTLOW)/2forthepast52periodstimeshiftedforwards(intothefuture)26periods
Learnmore
ThesenkouspanAandBdeservespecialmentionhereasthey,together,formtheIchimoku"kumo"orcloud.Wecoverthekumoanditsmyriad
functionsinmoredetailinthesection"Thekumo".
Thechartbelow(FIGUREI)providesavisualrepresentationofeachofthesefivecomponents:
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FIGUREIIchimokuComponents
IchimokuSettings
AsyoucanseeintheIchimokuComponentssectionabove,eachlinecalculationhasoneandsometimestwodifferentsettingsbasedonthenumberof
periodsconsidered.Aftermuchresearchandbacktesting,GoichiHosodafinallydeterminedthatthesettingsof9,26and52weretheidealsettingsfor
obtainingoptimumresultswithIchimoku.Hederivedthenumber26fromwhatwasthenthestandardJapanesebusinessmonth(whichincluded
Saturdays).Thenumber9representsaweekandahalfandthenumber52representstwomonths.
ThestandardsettingsforanIchimokuKinkoHyochartare9,26,52.
Thereissomedebatearoundwhetherornotthesesettingsof9,26,52arestillvalidgiventhatthestandardworkmonthhereintheWestdoesnotinclude
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Saturdays.Inaddition,innoncentralizedmarketsthatdonotkeepstandardbusinesshoursliketheForex(whichtradesaroundtheclock)somehave
positedthattheremaybemoreappropriatesettings.Nevertheless,weatBoersma&Hunt,aswellasmostotherprofessionalIchimokutraders,agreethat
thestandardsettingsof9,26,52workextremelywellanddonotneedtobealtered.
Theargumentcouldbemadethat,sinceIchimokuKinkoHyofunctionsasafinelytuned,integratedwhole,changingthesettings
tosomethingotherthanthestandardcouldthrowthesystemoutofbalanceandintroduceinvalidsignals.
Thus,forthepurposesofdescribingIchimokuKinkoHyowithinthiswiki,itwillbeassumedthatthestandardsettingsarebeingused.
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IchimokucomponentsIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
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Ichimokucomponents
Contents
1TenkanSen
2KijunSen
3ChikouSpan
4SenkouSpanA
5SenkouSpanB
TenkanSen
Thetenkansen,aswehavealreadymentionedinourIntroductionsection,iscalculatedinthefollowingmanner:
TENKANSEN("turningline")
Whilemanymaycomparethetenkansentoasimple9periodsimplemovingaverage(SMA),itisquitedifferentinthesensethatitmeasurestheaverage
ofprice'shighesthighandlowestlowforthelast9periods.Hosodabelievedthatusingtheaverageofpriceextremesoveragivenperiodoftimewasa
bettermeasureofequilibriumthanmerelyusinganaverageoftheclosingprice.Thisstudyofthetenkansenwillprovideuswithourfirstforayintothe
keyaspectofequilibriumthatissoprevalentintheIchimokuKinkoHyochartingsystem.
ConsiderthechartinFigureIbelow:
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FIGUREITenkanSenvs.9PeriodSMA
Ascanbeseeninthechart,thetenkansenoftenexhibits"flattening"whereasthe9periodSMAdoesnot.Thisisduetothefactthatthetenkansenuses
theaverageofthehighesthighandlowestlowratherthananaverageoftheclosingprice.Thus,duringperiodsofpriceranging,thetenkansenwill
clearlyshowthemidpointoftherangeviaitsflataspect.
Whenthetenkansenisflat,itessentiallyindicatesatrendlessconditionoverthelast9
periods.
Itcanalsobeseenhowthetenkansenprovidesamuchmoreaccuratelevelofpricesupportthandoesthe9periodSMA.Withonlyoneexception,price
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actionstayedabovethetenkanseninthethreehighlightedareasofthechart,whilepricebrokebelowtheSMAnumeroustimes.Thisisduetothemore
conservativemannerinwhichthetenkanseniscalculated,whichmakesitlessreactivetosmallmovementsinprice.Onabearishchart,thetenkansen
willlikewiseactasalevelofresistance.
Theangleofthetenkansencanalsogiveusanideaoftherelativemomentumofpricemovementsoverthelast9periods.Asteeplyangledtenkansen
willindicateanearlyverticalpriceriseoverashortperiodoftimeorstrongmomentum,whereasaflattertenkansenwillindicatelowermomentumorno
momentumoverthatsametimeperiod.
Thetenkansenandthekijunsenbothmeasuretheshortertermtrend.Ofthetwo,thetenkansenisthe"fastest"giventhatitmeasurestrendoverthepast
9periodsasopposedtothekijunsen's26periods.Thus,giventheveryshorttermnatureofthetenkansen,itisnotasreliableanindicatoroftrendas
manyothercomponentsofIchimoku.Nevertheless,pricebreachingthetenkansencangiveanearlyindicationofatrendchange,though,likeall
Ichimokusignals,thisshouldbeconfirmedbytheotherIchimokucomponentsbeforemakinganytradingdecision.
Oneoftheprimaryusesofthetenkansenisvisavisitsrelationtothekijunsen.Ifthetenkansenisabovethekijunsen,thenthatisabullishsignal.
Likewise,ifthetenkansenisbelowthekijunsen,thenthatisbearish.Thecrossoverofthesetwolinesisactuallyatradingsignalonitsown,attopicthat
iscoveredinmoredetailinourIchimokuTradingStrategiessection.
Discussthis!(http://www.boersmaandhunt.com/kumotrader_forum/index.php?board=9.0)
KijunSen
Thekijunseniscalculatedinthefollowingmanner:
KIJUNSEN("standardline")
Thekijunsenisoneofthetrue"workhorses"ofIchimokuKinkoHyoandithasmyriadapplications.Likeitsbrother,thetenkansen,thekijunsen
measurestheaverageofprice'shighesthighandlowestlow,thoughitdoessooveralongertimeframeof26periodsasopposedtothetenkansen's9
periods.Thetenkansenthusprovidesuswithalltheinformationthetenkansendoes,justonalongertimeframe.
Duetothelongertimeperioditmeasures,thekijunsenisamorereliableindicatorofshorttermpricesentiment,strengthandequilibriumthanthetenkan
sen.Ifpricehasbeenranging,thenthekijunsenwillreflecttheverticalmidpointofthatrange(priceequilibrium)viaitsflataspect.Oncepriceexceeds
eitherthelasthighesthighorlowestlowwithinthelast26periods,however,thekijunsenwillreflectthatbyeitheranglingupordown,respectively.
Thus,shorttermtrendcanbemeasuredbythedirectionofthekijunsen.Inaddition,therelativeangleofthekijunsenwillindicatethestrengthor
momentumofthetrend.
Priceequilibriumisexpressedevenmoreaccuratelyinthekijunsenthaninthetenkansen,giventhelongerperiodoftimeitconsiders.Thus,thekijun
sencanberelieduponasasignificantlevelofpricesupportandresistance(seehighlightedareasinFigureIIbelow).
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FIGUREIIKijunSenSupport
Pricetendstomovealternatelyawayfromandbacktowardthekijunseninacyclicalfashionduetothekijunsen'sstrongexpressionofequilibriumor
stasis.Thus,whenpricemomentumisextremeandpricemovesrapidlyupordownoverashortperiodoftime,acertain"rubberband"effectcanbe
observedonpricebythekijunsen,attractingpricebacktowardsitselfandbringingitbacktoequilibrium.Ananalogycouldbemadebetweenhowprice
interactswiththekijunsenandhowelectricityalwaysseekstoreturntogroundorzeropotential.The"ground"inthiscaseisthekijunsenandpricewill
alwaysseektoreturntothatlevel.Thisphenomenonisparticularlyevidentwhenthekijunsenisflatortrendless,ascanbeseeninFigureIIIbelow:
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FIGUREIIIKijunSen"RubberBand"Effect
Giventhedynamicsofthekijunsenoutlinedabove,traderscanusethekijunseneffectivelyasbothalowriskpointofentryaswellasasolidstoploss.
Thesetwotacticsareemployedextensivelyinboththekijunsencrossaswellasthetenkansen/kijunsencrossstrategieswhicharecoveredingreater
detailinourIchimokuTradingStrategiessection.
ChikouSpan
Thechikouspaniscalculatedinthefollowingmanner:
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CHIKOUSPAN("laggingline")
CURRENTCLOSINGPRICEtimeshiftedbackwards(intothepast)26periods
ThechikouspanrepresentsoneofIchimoku'smostuniquefeaturesthatoftimeshiftingcertainlinesbackwardsorforwardsinordertogainaclearer
perspectiveofpriceaction.Inthechikouspan'scase,thecurrentclosingpriceistimeshiftedbackwardsby26periods.Whiletherationalebehindthis
mayatfirstappearconfusing,itbecomesveryclearonceweconsiderthatitallowsustoquicklyseehowtoday'spriceactioncomparestotheprice
actionof26periodsago,whichcanhelpdeterminetrenddirection.
Ifthecurrentcloseprice(asdepictedbythechikouspan)islowerthanthepriceof26periodsago,thatwouldindicatethatthereisapotentialformore
bearishpriceactiontocome,sincepricetendstofollowtrends.Conversely,ifthecurrentclosingpriceisabovethepriceof26periodsago,thatwould
thenindicatethepossibilityformorebullishpriceactiontofollow.
ConsiderthechartsinFiguresIVandVbelow:
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FIGUREIVChikouSpaninBullishConfiguration
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FIGUREVChikouSpaninBearishConfiguration
Inadditiontoprovidinguswithanotherpieceofthe"trendpuzzle",thechikouspanalsoprovidesclearlevelsofsupportandresistance,giventhatit
representspriorclosingprices.Ichimokupractitionerscanthusdrawhorizontallinesacrossthepointscreatedbythechikouspantoseethesekeylevels
andutilizethemintheiranalysisandtradingdecisions(seeFigureVIbelow).
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FIGUREVIChikouSpanSupportandResistanceLevels
SenkouSpanA
ThesenkouspanAiscalculatedinthefollowingmanner:
SENKOUSPANA("1stleadingline")
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(TENKANSEN+KIJUNSEN)/2timeshiftedforwards(intothefuture)26periods
ThesenkouspanAisbestknownforitspart,alongwiththesenkouspanBline,informingthekumo,or"Ichimokucloud"thatisthefoundationofthe
IchimokuKinkoHyochartingsystem.ThesenkouspanAisanotheroneofthetimeshiftedlinesthatareuniquetoIchimoku.Inthiscase,itisshifted
forwardsby26periods.Sinceitrepresentstheaverageofthetenkansenandkijunsen,thesenkouspanAisitselfameasureofequilibrium.Goichi
Hosodaknewwellthatpricetendstorespectpriorsupportandresistancelevels,sobytimeshiftingthislineforwardby26periodsheallowedthe
Ichimokupractitionertoquicklysee"ataglance"wheresupportandresistancefrom26periodsago(1monthagoonaDailychart)residecomparedwith
currentpriceaction.
WhileitispossibletotradeoffofthesenkouspanAandBlinesontheirown,theirrealpowercomesintheircombineddynamicsinthekumo.
SenkouSpanB
ThesenkouspanBiscalculatedinthefollowingmanner:
SENKOUSPANB("2ndleadingline")
(HIGHESTHIGH+LOWESTLOW)/2forthepast52periodstimeshiftedforwards(intothefuture)
26periods
ThesenkouspanBisbestknownforitspart,alongwiththesenkouspanAline,informingthekumo,or"Ichimokucloud"thatisthefoundationofthe
IchimokuKinkoHyochartingsystem.Onitsown,thesenkouspanBlinerepresentsthelongesttermviewofequilibriumintheIchimokuKinkoHyo
system.Ratherthanconsideringonlythelast26periodsinitscalculationlikethesenkouspanA,thesenkouspanBmeasurestheaverageofthehighest
highandlowestlowforthepast52periods.Itthentakesthatmeasureandtimeshiftsitforwardby26periods,justlikethesenkouspanA.InHosoda's
originalimplementation,thesenkouspanBwouldthusrepresentpriceequilibriumforthepriortwo(2)monthperiod,shiftedaheadofcurrentpricebyone
(1)month.ThisconventionallowsIchimokupractitionerstoseethislongertermmeasureofequilibriumaheadofcurrentpriceaction,allowingthemto
makeinformedtradingdecisions.
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ThekumoIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
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Contents
1TheBasics
2ABetterMeasureofSupportandResistance
3Price'sRelationshiptotheKumo
4KumoDepth
5KumoSentiment
6FlatTop/BottomKumos
TheBasics
Thekumoisthevery"heartandsoul"oftheIchimokuKinkoHyochartingsystem.PerhapsthemostimmediatelyvisiblecomponentofIchimoku,the
kumo("cloud"inJapanese)enablesonetoimmediatelydistinguishtheprevailing"bigpicture"trendandprice'srelationshiptothattrend.Thekumois
alsooneofthemostuniqueaspectsofIchimokuKinkoHyoasitprovidesadeep,multidimensionalviewofsupportandresistanceasopposedtojusta
single,unidimensionallevelasprovidedbyotherchartingsystems.Thismoreencompassingviewbetterrepresentsthewayinwhichthemarkettruly
functions,wheresupportandresistanceisnotmerelyasinglepointonachart,butratherareasthatexpandandcontractdependinguponmarketdynamics.
Thekumoitselfiscomprisedoftwolines,thesenkouspanAandthesenkouspanB.Eachofthesetwolinesprovidesitsownmeasureofequilibriumand
togethertheyformthecompleteviewoflongertermsupportandresistance.Betweenthesetwolinesliesthekumo"cloud"itself,whichisessentiallya
spaceof"notrend"wherepriceequilibriumcanmakepriceactionunpredictableandvolatile.
Tradingwithinthekumoisnotarecommendedpractice,asitstrendlessnaturecreatesahighdegreeofuncertainty.
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ABetterMeasureofSupportandResistance
Asmentionedearlier,oneofthekumo'smostuniqueaspectsisitsabilitytoprovideamorereliableviewofsupportandresistancethanthatprovidedby
otherchartingsystems.RatherthanprovidingasinglelevelforS&R,thekumoexpandsandcontractswithhistoricalpriceactiontogiveamulti
dimensionalviewofsupportandresistance.Attimesthekumo'sabilitytoforecastsupportandresistanceisnothingshortofeerie,ascanbeseeninthe
chartbelow(FigureI)forUSD/CAD,wherepricerespectedthekumoboundariesonfiveseparateoccasionsovera30dayspan.
FIGUREIKumoSupport&Resistance
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ThepowerofthekumobecomesevenmoreevidentwhenwecomparetraditionalsupportandresistancetheorytoIchimoku'smorecomprehensiveview
ofsupportandresistanceviathekumo.
InthechartforFigureIIbelow,wehaveaddedatraditionaldowntrendline(A)andatraditionalresistancelineat1.1867(B).Pricemanagedtobreak
andcloseaboveboththedowntrendlineandthesingleresistancelevelatpointC.TraditionalS&RtraderswouldtakethisasastrongsignaltogoLong
thispairatthatpoint.AsavvyIchimokupractitioner,ontheotherhand,wouldtakeonelookatprice'slocationjustbelowthebottomedgeofthekumoand
wouldknowthatgoinglongatthatpointisextremelyriskygiventhestrongresistancepresentedbythekumo.Indeed,pricedidbounceoffofthekumo
anddroppedapproximately250pips,whichwouldhavemostlikelyeradicatedthelongpositionofthetraditionalS&Rtrader.
Frustratedbyhislastlosingtrade,thetraditionalS&Rtraderspotsanotherchancetogolong,asheseespricebreakandcloseabovethepriorswinghigh
atpointD.TheIchimokutraderonlyseespricetradinginthemiddleofthekumo,whichheknowsisatrendlessareathatmakesforuncertainconditions.
TheIchimokutraderisalsoawarethatthetopboundaryofthekumo,thesenkouspanB,iscloseathandandmaypresentconsiderableresistance,sohe
againleavesthisdubiouslongtradetothetraditionalS&Rtraderasheawaitsabettertradeopportunity.Loandbehold,aftermeetingthekumoboundary
andmakingameager50pips,thepairdropslikeastonenearly500pips.
TheexamplegivenaboveillustrateshowIchimoku'smultidimensionalviewofsupportandresistancegivestheIchimokupractitioneran"insideview"of
S&Rthattraditionalchartistsdonothave.ThisenablestheIchimokupractitionertoselectonlythemostlegitimate,highrewardtradeopportunitiesand
rejectthoseofdubiousqualityandreward.Thetraditionalchartistisleftto"hope"thattheirlatestbreakouttradedoesn'tturnintoaheadfakeashaky
strategy,atbest.
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FIGUREIITraditionalS&RTheoryvs.IchimokuKumo
Price'sRelationshiptotheKumo
Initsmostbasicinterpretation,whenpriceistradingabovethekumo,thatisabullishsignalsinceitindicatescurrentpriceishigherthanthehistorical
average.Likewise,ifpriceistradingbelowthekumo,thatindicatesthatbearishsentimentisstronger.Ifpriceistradingwithinthekumo,thatindicatesa
lossoftrendsincethespacebetweenthekumoboundariesistheultimateexpressionofequilibriumorstasis.TheinformedIchimokupractitionerwill
normallyfirstconsultprice'srelationshiptothekumoinordertogettheirinitialviewonachart'ssentiment.Fromatradingperspective,theIchimoku
chartistwillalsoalwayswaitforpricetosituateitselfonthecorrectsideofthekumo(aboveforlongtradesandbelowforshorttrades)ontheirchosen
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executiontimeframebeforeinitiatinganytrades.Ifpriceistradingwithinthekumo,thentheywillwaittomakeanytradesuntilitclosesabove/belowthe
kumo.
KumoDepth
AsyouwillseeuponstudyinganIchimokuchart,thekumo'sdepthorthicknesscanvarydrastically.Thedepthofthekumoisanindicationofmarket
volatility,withathickerkumoindicatinghigherhistoricalvolatilityandathinneroneindicatinglowervolatility.Tounderstandthisphenomenon,weneed
tokeepinmindwhatthetwolinesthatmakeupthekumo,thesenkouspanAandthesenkouspanB,represent.ThesenkouspanAmeasurestheaverage
ofthetenkansenandkijunsen,soits"period"isbetween9and26periods,sincethosearethetwoperiodsthattheTenkanSenandKijunSenmeasure,
respectively.ThesenkouspanBline,ontheotherhand,measurestheaverageofthehighesthighandlowestlowpriceforthepast52periods.Thus,the
SenkouSpanAisessentiallythe"faster"lineofthetwo,sinceitmeasuresashorterperiodofequilibrium.
ConsiderthechartinFigureIIIbelow.Fortheprevious52periods,pricemadeatotalrangeof793pips(fromahighof1.2672toalowof1.1879)The
midpointoraverageofthisrangeis1.2275andthatisthusthevalueofthesenkouspanB.Thisvalueisthentimeshiftedforwardsby26periodssothatit
staysinfrontofcurrentpriceaction.ThesenkouspanAismorereactivetoshorttermpriceactionandthusisalreadyreflectingthemoveofpriceback
upfromitslowof1.1879initspositiveangleandthegraduallythinningkumo.ThesenkouspanB,ontheotherhand,isactuallycontinuingtomovedown
asthehighesthighofthelast52periodscontinuestolowerasitfollowsthepricecurve'smovedownfromtheoriginalhighof1.2672.Ifpricecontinues
torise,thesenkouspanAandBwillswitchplacesandthesenkouspanAwillcrossabovethesenkouspanBinasocalled"kumotwist".
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FIGUREIIITheKumoanditsCalculations
Thekumoexpandsandcontractsbasedonmarketvolatility.Withgreatervolatility(i.e.wherethepriceofagivencurrencypairchangesdirection
dramaticallyoverashortperiodoftime),thefastersenkouspanAwilltravelalonginrelativeuniformitywiththepricecurvewhiletheslowersenkou
spanBwilllagsignificantlygiventhatitrepresentstheaverageofthehighesthighandlowestlowoverthepast52periods.Thickerkumosarethus
createdwhenvolatilityincreasesandthinneronesarecreatedwhenvolatilitydecreases.
Kumodepthorthicknessisafunctionofpricevolatility
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Fromatradingperspective,thethickerthekumo,thegreatersupport/resistanceitwillprovide.ThisinformationcanbeusedbytheIchimokupractitioner
tofinetunetheirriskmanagementandtradingstrategy.Forexample,theymayconsiderincreasingtheirpositionsizeiftheirLongentryisjustabovea
particularlythickkumo,asthechancesofpricebreakingbackbelowthekumoissignificantlylessthanifthekumowereverythin.Inaddition,iftheyare
alreadyinapositionandpriceisapproachingaverywelldevelopedkumoonanothertimeframe,theymaychoosetoeithertakeprofitatthekumo
boundaryoratleastreducetheirpositionsizetoaccountfortheriskassociatedwiththethickerkumo.
Ingeneral,thethickerandmorewelldevelopedakumois,thegreaterthesupport/resistanceitwillprovide.
KumoSentiment
Inadditiontoprovidingaviewofsentimentvisavisitsrelationshipwithprice,thekumoitselfalsohasitsown"internal"sentimentorbias.Thismakes
sensewhenweconsiderthatthekumoismadeupofessentiallytwomovingaverages,thesenkouspanAandthesenkouspanB.Whenthesenkouspan
AisabovethesenkouspanB,thesentimentisbullishsincethefastermovingaverageistradingabovetheslower.Conversely,whenthesenkouspanBis
abovethesenkouspanA,thesentimentisbearish.
ThisconceptofkumosentimentcanbeseeninFigureIVbelow:
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FIGUREIVKumoSentiment
WhenthesenkouspanAandBswitchplacesthisindicatesanoveralltrendchangefromthislongertermperspective.Ichimokupractitionersthuskeepan
eyeontheleadingkumo'ssentimentforcluesaboutbothcurrenttrendaswellasanyupcomingtrendchanges.The"senkouspancross"isanactual
tradingstrategythatutilizesthiskumotwistasbothanentryaswellasacontinuationorconfirmationsignal.Moreonthisstrategyiscoveredinour
IchimokuTradingStrategiessection.
FlatTop/BottomKumos
Theflattoporbottomthatisoftenobservedinthekumoiskeytounderstandingonepieceofthekumo's"equilibriumequation".Justlikethe"rubberband
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effect"thataflatkijunsencanexertonprice,aflatsenkouspanBcanactinthesameway,attractingpricethatisincloseproximity.Thereasonforthis
issimple:aflatsenkouspanBrepresentsthemidpointofatrendlesspricesituationovertheprior52periodspriceequilibrium.Sincepricealwaysseeks
toreturntoequilibrium,andtheflatsenkouspanBissuchastrongexpressionofthisequilibrium,itbecomesanequallystrongattractorofprice.
Inabullishtrend,thisflatsenkouspanBwillresultinaflatbottomkumoandinabearishtrenditwillmanifestasaflattopkumo.TheIchimoku
practitionercanusethisknowledgeofthephysicsoftheflatsenkouspanBinordertobemorecautiousaboutboththeirexitsoutofthekumo.For
instance,whenexitingaflatbottom(bullish)kumofromthebottom,ratherthanmerelyplacinganentryorder10pipsbelowthesenkouspanB,savvy
Ichimokupractitionerswilllookforanotherpointaroundwhichtobuildtheirentryordertoensuretheydon'tgetcaughtintheflatbottom's"gravitational
pull".Thismethodminimizesthenumberoffalsebreakoutsexperiencedbythetrader.
SeethehighlightedareasinthechartforFigureVbelowforanexampleofflattopandbottomkumos:
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FIGUREVFlatTopandFlatBottomKumos
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TrendtradingIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
MainPage
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KumoTraderForum
Trendtrading
Definition
"Trendfollowingisaninvestmentstrategythattakesadvantageoflongtermmovesthatplayoutinvariousmarkets...Traderswhousethisapproachcan
usecurrentmarketpricecalculation,movingaveragesandchannelbreakoutstodeterminethegeneraldirectionofthemarketandtogeneratetrade
signals.Thisapproachisreactive,diversified,longterm,andsystematicbynature.Traderswhosubscribetoatrendfollowingstrategydonotaimto
forecastorpredictmarketsorpricelevelstheysimplyjumponthetrendandrideit."
DefinitionoftrendfollowingfromWikipedia
IchimokuKinkoHyoandTrendTrading
ItmustbeunderstoodbyanywhowishestousethepowerofIchimokuKinkoHyothatitis,firstandforemost,atrendtradingsystem.Itisfurther
assumedthatthetraderwieldingIchimokudoessowithasolidundertandingofthebasictenetsoftrendtrading.Thisisakeyassumption,since
knowledgeofhowtotradethetrendisabsolutelycriticaltolongtermsuccesswithIchimoku.Ichimokuonitsownwillnotteachonetheunderlying
philosophyoftrendfollowing,sowemustmakeaspecialmentalnoteatthispointregardingthekeyfactorsinvolvedinsuccessfultrendtrading.
Trendtraders:
NEVERattempttopredictwherethemarketwillgo
NEVERattempttopick"tops"and"bottoms"ofpriceaction
ALWAYSrespectthetrendandaligntheirtradesaccordingly
Letthemarkettellthemwhenthetrendisfinished,nottheir"intuition"
Realizethattheywillnecessarilysacrificesomepipsatthebeginningandendofatrendastheywaitforconfirmationthatthetrend
beginningandendareauthentic
Lookatpriceactionfromalongtermperspectiveanddon'tgetshakenbyvolatility
Understandthattheywillgothroughsomepotentiallysignificantbuttemporaryperiodsofdrawdownasthetrendmatures
http://www.kumotrader.com/ichimoku_wiki/index.php?title=Trend_trading
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TrendtradingIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
Understandthattrendtradingcanleadtolargegainsbutalsoequallylargelosses
Understandthattrendscantakeplaceonmultipletimeframes
Profitabletrendtradingis99%mental.Ifonecanconquertheirmindandquelltheinevitableinnerdialoguethatscreams"Whoa!Lookslikepriceisgoing
againstyourposition!ThetrendmustbeendingSELLNOW!!"andkeeptheireyesonthelongterm,theystandanexcellentchanceatbeinga
successful,happyandstressfreetrendtrader.However,iftheycannotturnoffthisinnerdialogueoratleastignoreitandkeeptheirfocusonthelong
term,thentheyareinforaveryshort,verybumpyrideasaForextrader.
Asachartingsystemthatispurposebuiltfortrendtrading,IchimokuKinkoHyocanprovidethesavvypractitionerwithamuchdeeperviewofthetrend
andtherefore,moresecureentryandexitsignalsthananyothertrendtradingsystemavailable.Nevertheless,itmustbecombinedwiththepropermindset
inordertobeusedtoitsfullpotential.
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IchimokutradingstrategiesIchiWikiTheDefinitiveReferencetotheIchimokuKinkoHyoChartingSystem
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KumoTraderForum
Ichimokutradingstrategies
Contents
1READTHISFIRST!
2TenkanSen/KijunSenCross
2.1Entry
2.2Exit
2.3StopLossPlacement
2.4TakeProfitTargets
2.5CaseStudy
3KijunSenCross
3.1Entry
3.2Exit
3.5CaseStudy
4KumoBreakout
4.1Entry
4.2Exit
4.5CaseStudy
5SenkouSpanCross
5.1Entry
5.2Exit
http://www.kumotrader.com/ichimoku_wiki/index.php?title=Ichimoku_trading_strategies
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5.5CaseStudy
6ChikouSpanCross
6.1Entry
6.2Exit
6.5CaseStudy
READTHISFIRST!
Ichimokuisafinelytuned,integratedchartingsystemwherethefivelinesallworkinconcerttoproducetheendresult.Weemphasizetheword"system"
herebecauseitisabsolutelykeytounderstandinghowtousethevarioustradingstrategiesweoutlineinthissection.Everystrategycoveredbelowisto
beusedandmeasuredagainsttheprevailingIchimoku"picture"ratherthaninisolation.Thismeansthat,whileascenariothatmatchesagivenstrategy
mayhavetranspired,youstillmustweighthatsignalagainsttherestofthechartinordertodeterminewhetherornotitoffersahighprobabilitytrade.
AnotherwayoflookingatitisthatIchimokuisasystemandthediscretestrategiesfortradingitaremerely"subsystems"withinthatlargersystem.
Thus,lookingattradinganyofthesestrategiesfromanautomatedorisolatedapproachthatdoesn'ttakeintoaccounttherestofwhattheIchimokuchartis
tellingyouwillmeetwithmixedlongtermsuccess,atbest.
Don'tmisinterpretthemessagethestrategiesoutlinedbelowareverypowerfulandcanbringconsistentresultsifusedwiselywhichiswithinthescope
ofthelargerIchimokupicture.Weaskthatyoualwayskeepthisinmindwhenemployingthesestrategies.
IfyouareinterestedindiscussingthesetradingstrategiesinmoredetailwithboththeauthorsandotherIchimokutraders,pleasevisittheKumoTrader
IchimokuForum(http://www.boersmaandhunt.com/kumotrader_forum/index.php?board=23.0).
TenkanSen/KijunSenCross
Thetenkansen/kijunsencrossisoneofthemosttraditionaltradingstrategieswithintheIchimokuKinkoHyosystem.Thesignalforthisstrategyisgiven
whenthetenkansencrossesoverthekijunsen.Ifthetenkansencrossesabovethekijunsen,thenitisabullishsignal.Likewise,ifthetenkansen
crossesbelowthekijunsen,thenthatisabearishsignal.LikeallstrategieswithintheIchimokusystem,thetenkansen/kijunsencrossneedstobeviewed
intermsofthebiggerIchimokupicturebeforemakinganytradingdecisions,asthiswillgivethestrategythebestchancesofsuccess.
Ingeneral,thetenkansen/kijunsenstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.
STRONGTENKANSEN/KIJUNSENCROSSSIGNAL
Astrongtenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappensabovethekumo.
Astrongtenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappensbelowthekumo.
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NEUTRALTENKANSEN/KIJUNSENCROSSSIGNAL
Aneutraltenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappenswithinthekumo.
Aneutraltenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappenswithinthekumo.
WEAKTENKANSEN/KIJUNSENCROSSSIGNAL
Aweaktenkansen/kijunsencrossBuysignaltakesplacewhenabullishcrosshappensbelowthekumo.
Aweaktenkansen/kijunsencrossSellsignaltakesplacewhenabearishcrosshappensabovethekumo.
SeethechartinFigureIbelowforanexampleofseveralclassificationsofthetenkansen/kijunsencross:
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FIGUREITenkanSen/KijunSenCrossClassifications
Butwait!Haveyoucheckedthechikouspan?
Withthesethreemajorclassificationsinmind,wewilladdsomethingelseintotheequationthechikouspan.Asweexplainedinthesectiondetailingthe
chikouspan,thiscomponentactsasa"finalarbiter"ofsentimentandshouldbeconsultedwitheverysingletradingsignalintheIchimikuKinkoHyo
chartingsystem.Thetenkansen/kijunsencrossisnodifferent.EachofthethreeclassificationsoftheTS/KScrossmentionedabovecanbefurther
classifiedbasedonthechikouspan'slocationinrelationtothepricecurveatthetimeofthecross.Ifthecrossisa"Buy"signalandthechikouspanis
abovethepricecurveatthatpointintime,thiswilladdgreaterstrengthtothatbuysignal.Likewise,ifthecrossisa"Sell"signalandthechikouspanis
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belowthepricecurveatthatpointintime,thiswillprovideadditionalconfirmationtothatsignal.Ifthechikouspan'slocationinrelationtotheprice
curveistheoppositeoftheTS/KScross'ssentiment,thenthatwillweakenthesignal.
Entry
Theentryforthetenkansen/kijunsencrossisverystraightforwardanorderisplacedinthedirectionofthecrossoncethecrosshasbeensolidifiedbya
close.Nevertheless,inaccordancewithgoodIchimokutradingpractices,thetradershouldbearinmindanysignificantlevelsofsupport/resistancenear
thecrossandconsidergettingacloseabovethoselevelsbeforeexecutingtheirorder.
Exit
Theexitfromatenkansen/kijunsencrosswillvarywiththeparticularcircumstancesofthechart.Themosttraditionalexitsignalisatenkansen/kijun
sencrossintheoppositedirectionofyourtrade.However,personalriskmanagementandtimeframeconcernsmaydictateanearlierexit,oranexit
baseduponotherIchimokusignals,justasinanyothertrade.
StopLossPlacement
Thetenkansen/kijunsenstrategydoesnotdictateuseofanyparticularIchimokustructureforstoplossplacement,likesomeotherstrategiesdo.Instead,
thetradershouldconsidertheirexecutiontimeframeandtheirmoneymanagementrulesandthenlookfortheappropriateprevailingstructureforsetting
theirstoploss.
TakeProfitTargets
Takeprofittargettingforthetenkansen/kijunsencrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swing
traderperspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargets
butratherwaitsforthecurrenttrendtobeinvalidatedbyatenkansen/kijunsencrosstranspiringintheoppositedirectionoftheirtrade.
CaseStudy
Inthe4HchartinFigureIIbelowwecanseeabullishtenkansen/kijunsencrossatpointA.Sincethiscrosstookplacewithinthekumoitself,itis
considereda"neutral"buysignal,thuswewaitforpricetoexitandcloseabovethekumotoconfirmthissentimentbeforeplacingourlongentry.Price
doesachieveacloseabovethekumoatpointB(1.5918)andweplaceourlongentryatthatpoint.Forourstoploss,welookfortheplacewhereour
tradesentimentwouldbeinvalidated.Inthiscase,thebottomedgeofthekumoprovidesuswithjustthatatpointC(1.5872).
Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilekeepinganeyeoutforpotentialexitsignals.Pricerisesnicely
forthenext10to11daysandthen,onthe15thdayofthetrade,pricedropsenoughtohavethetenkansencrossbelowthekijunsenatpointD.Thisis
ourexitsignal,sinceIchimokuistellingusthatthesentimenthaschanged,sowecloseourorderat1.6014atpointEforatotalgainofover95pips.
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FIGUREIITenkanSen/KijunSenCrossCaseStudy
Formaximumriskmanagementonthistrade,wealsocouldhavemovedourstoplossupwithpriceoncepricewasaconservativedistanceawayfromour
entry.Oneoptionfordoingthiswouldbetomovethestoplossupwiththekumo,keepingitjustbelowthebottomedge.Foreventighterriskmanagement,
wecouldhavemovedourstoplosswiththekijunsen,keepingit5to10pipsbelowthatlineasitmovedup.
KijunSenCross
ThekijunsencrossisoneofthemostpowerfulandreliabletradingstrategieswithintheIchimokuKinkoHyosystem.Itcanbeusedonnearlyalltime
frameswithexcellentresults,thoughitwillbesomewhatlessreliableonthelower,daytradingtimeframesduetotheincreasedvolatilityonthosetime
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frames.Thekijunsencrosssignalisgivenwhenpricecrossesoverthekijunsen.Ifitcrossesthepricecurvefromthebottomup,thenitisabullish
signal.Ifitcrossesfromthetopdown,thenitisabearishsignal.Nevertheless,likealltradingstrategieswithintheIchimokuKinkoHyosystem,thekijun
sencrosssignalneedstobeevaluatedagainstthelargerIchimoku"picture"beforecommittingtoanytrade.
Ingeneral,thekijunsencrossstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.
STRONGKIJUNSENCROSSSIGNAL
AstrongkijunsencrossBuysignaltakesplacewhenabullishcrosshappensabovethekumo.
AstrongkijunsencrossSellsignaltakesplacewhenabearishcrosshappensbelowthekumo.
NEUTRALKIJUNSENCROSSSIGNAL
AneutralkijunsencrossBuysignaltakesplacewhenabullishcrosshappenswithinthekumo.
AneutralkijunsencrossSellsignaltakesplacewhenabearishcrosshappenswithinthekumo.
WEAKKIJUNSENCROSSSIGNAL
AweakkijunsencrossBuysignaltakesplacewhenabullishcrosshappensbelowthekumo.
AweakkijunsencrossSellsignaltakesplacewhenabearishcrosshappensabovethekumo.
SeethechartinFigureIIIbelowforanexampleofseveralclassificationsofthekijunsencross:
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FIGUREIIIKijunSenCrossClassifications
Chikouspanconfirmation
Aswiththetenkansen/kijunsencrossstrategy,thesavvyIchimokutraderwillmakegooduseofthechikouspantoconfirmanykijunsencrosssignal.
Eachofthethreeclassificationsofthekijunsencrossoutlinedabovecanbefurtherclassifiedbasedonthechikouspan'slocationinrelationtotheprice
curveatthetimeofthecross.Ifthecrossisa"Buy"signalandthechikouspanisabovethepricecurveatthatpointintime,thiswilladdgreaterstrength
tothatbuysignal.Likewise,ifthecrossisa"Sell"signalandthechikouspanisbelowthepricecurveatthatpointintime,thiswillprovideadditional
confirmationtothatsignal.Ifthechikouspan'slocationinrelationtothepricecurveistheoppositeofthekijunsencross'ssentiment,thenthatwill
weakenthesignal.
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Entry
Theentryforthekijunsencrossisverystraightforwardanorderisplacedinthedirectionofthecrossoncethecrosshasbeensolidifiedbyaclose.
Nevertheless,inaccordancewithgoodIchimokutradingpractices,thetradershouldbearinmindanysignificantlevelsofsupport/resistancenearthe
crossandconsidergettingacloseabovethoselevelsbeforeexecutingtheirorder.
Exit
Atraderexitsakijunsencrosstradeupontheirstoplossgettingtriggeredwhenpricecrossingthekijunsenintheoppositedirectionoftheirtrade.Thus,
itiskeythatthetradermovetheirstoplossinlockstepwiththemovementofthekijunseninordertomaximizetheirprofit.
StopLossPlacement
ThekijunsencrossstrategyisuniqueamongIchimokustrategiesinthatthetrader'sstoplossisdeterminedandmanagedbythekijunsenitself.Thisis
duetothekijunsen'sstrongrepresentationofpriceequilibrium,whichmakesitanexcellentdeterminantofsentiment.Thus,ifpriceretracesbackbelow
thekijunsenafterexecutingabullishkijunsencross,thenthatisagoodindicationthatinsufficientmomentumispresenttofurtherthenascentbullish
sentiment.
Whenenteringatradeuponakijunsencross,thetraderwillreviewthecurrentvalueofthekijunsenandplacetheirstoploss5to10pipsontheopposite
sideofthekijunsenthattheirentryisplacedon.Theexactnumberofpipsforthestoploss"buffer"above/belowthekijunsenwilldependuponthe
dynamicsofthepairandprice'shistoricalbehaviorvisavisthekijunsenaswellastherisktoleranceoftheindividualtrader,but5to10pipsshouldbe
appropriateformostsituations.WhenlookingtoenterShort,thetraderwilllooktoplacetheirstoplossjustabovethecurrentkijunsenandwhenlooking
toenterLong,thetraderwillplacetheirstoplossjustbelowthecurrentkijunsen.
Oncethetradeisunderway,thetradershouldmovetheirstoplossup/downwiththemovementofthekijunsen,alwaysmaintainingthe5to10pip
"buffer".Inthisway,thekijunsenitselfactsasa"trailingstoploss"ofsortsandenablesthetradertokeepatightholdonriskmanagementwhile
maximizingprofits.
TakeProfitTargets
Takeprofittargettingforthekijunsencrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swingtrader
perspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargetsbut
ratherwaitsforthecurrenttrendtobeinvalidatedbypricecrossingbackoverthekijunsenintheoppositedirectionoftheirtrade.
CaseStudy
Inthe1DchartinFigureIVbelowforUSD/CHFwecanseeabullishkijunsencrossatpointA.Whiletheinitialcrossisabovethekumoandtherefore
arelativelystrongcross,itisstillbeneathaverykeychikouspanlevel(notvisibleonthischart),sowewaituntilwegetacloseabovethatkeylevel
beforeenteringatpointB.Atthispoint,wealsohavetheadditionalbenefitofconfirmationfromabullishtenkansen/kijunsencrossandaniceupward
angletothekijunsen,bolsteringourprospectsformorebullishpriceactionevenmore.Forourstoploss,wefollowthekijunsentradingstrategy
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guidelinesandplaceit10pipsbelowtheprevailingkijunsenatpointC.
Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilecontinuallymovingupourstoplosswiththekijunsen.Price
risesnicelyforthenext40daysstayingwellabovethekijunsen.Afterthispoint,pricebeginstodropand,onthe44thday,pricecrossesthekijunsen
andhitsourstoplossatpointDclosingoutourtradeandnettingusaprofitof641pips.
FIGUREIVKijunSenCrossCaseStudy
KumoBreakout
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KumoBreakouttradingor"KumoTrading"isatradingstrategythatcanbeusedonmultipletimeframes,thoughitismostwidelyusedonthehighertime
frames(e.g.:Daily,Weekly,Monthly)ofthepositiontrader.KumobreakouttradingisthepurestformoftrendtradingofferedbytheIchimokucharting
system,asitlookssolelytothekumoandprice'srelationshiptoitforitssignals.Itis"bigpicture"tradingthatfocusesonlyonwhetherpriceistrading
aboveorbelowtheprevailingkumo.Inanutshell,thesignaltogolonginKumobreakouttradingiswhenpriceclosesabovetheprevailingkumoand,
likewise,thesignaltogoshortiswhenpriceclosesbelowtheprevailingkumo.
SeethechartinFigureVbelowforanexampleofakumobreakoutbuysignal:
FIGUREVKumoBreakoutBuySignal
Entry
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Theentryforthekumobreakouttradingstrategyissimplewhenpriceclosesabove/belowthekumo,thetraderplacesatradeinthedirectionofthe
breakout.Nevertheless,caredoesneedtobetakentoensurethebreakoutisnota"headfake"whichcanbeespeciallyprevalentwhenthebreakouttakes
placefromaflattop/bottomkumo.Toensuretheflattop/bottomisnotgoingtoattractpricebacktothekumo,itisalwaysadvisabletolookforanother
Ichimokustructureto"anchor"yourentrytojustabove/belowthekumobreakout.Thisanchorcanbeanythingfromakeylevelprovidedbythechikou
span,akumoshadoworanyotherappropriatestructurethatcouldactasadditionalsupport/resistancetosolidifythedirectionandmomentumofthetrade.
Kumobreakouttradersalsomakegooduseoftheleadingkumo'ssentimentbeforecommittingtoatrade.IftheleadingkumoisaBearkumoandthe
kumobreakoutisalsoBear,thenthatisaverygoodsignthatthebreakoutisnotanaberrationofexcessivevolatility,butratheratrueindicationofmarket
sentiment.Iftheleadingkumocontradictsthedirectionofthebreakout,thenthetradermaywanttoeitherwaituntilthekumodoesagreewiththe
directionofthetradeorusemoreconservativepositionsizingtoaccountfortheincreasedrisk.
Exit
Theexitfromakumobreakouttradeistheeasiestpartofthewholetrade.Thetradermerelywaitsfortheirstoplosstogettriggeredaspriceexitsthe
oppositesideofthekumoonwhichthetradeistranspiring.Sincethetraderhasbeensteadilymovingtheirstoplossupwiththekumoduringtheentire
lifespanofthetrade,thisassurestheymaximizetheirprofitandminimizetheirrisk.
StopLossPlacement
Beinga"bigpicture"trendtradingstrategy,thestoplossforthekumobreakoutstrategyisplacedatthepointthatthetrendhasbeeninvalidated.Thus,
thestoplossforakumobreakouttrademustbeplacedontheoppositesideofthekumothatthetradeistranspiringon,1020pipsawayfromthekumo
boundary.Ifpricedoesmanagetoreachthepointofthestoploss,thetradercanberelativelyassuredthatamajortrendchangehastakenplace.
TakeProfitTargets
Whiletraditionaltakeprofittargetscanbeusedwiththekumobreakouttradingstrategy,itismoreinlinewiththelongtermtrendtradingapproachto
simplymovethestoplossup/downwiththekumoasitmatures.Thismethodallowsthetradetotakefulladvantageofthetrendwithoutclosingthetrade
untilpriceactiondictatesunequivocallythatthetrendisover.
CaseStudy
IntheWeeklychartinFigureVIbelowforAUD/USDwecanseeabearishkumobreakouttakingplaceatpointA.Wealsoseethatthatleadingkumo
isdistinctlybearishaswell,whichactstoconfirmourbreakoutsentiment.Giventhatpriceisexitingfromaflatbottomkumoandthatwewanttoreduce
anyrisksofenteringonafalsebreakout,welookforaclosebelowthelastchikouspansupportat.7600beforeentering.Theclosewearelookingforis
achievedshortlythereafteratpointBandweentershort.
Forourstoploss,wefollowthekumobreakoutguidelineofplacingit1020pipsawayfromtheoppositesideofthekumowhereourbreakoutistaking
place.Inthiscase,weplaceit20pipsawayfromthetopofthekumoaboveourentrycandleatpointC(.7994).
Onceweplaceourentryandstoplossorders,wemerelywaitforthetradetounfoldwhilecontinuallymovingourstoplossdownwiththeprevailing
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kumo.GiventhatweareusingtheWeeklychartasourexecutiontimeframe,weprepareourselvesforaverylongtermtrade.Inthiscase,nearlytwo
yearslater,pricerisesenoughtobreakoutofthekumototheotherside,whereittriggersourbuyordersome20pipsawayatpointDnettingusover
1100pipsintheprocess.
FIGUREVIKumoBreakoutCaseStudy
SenkouSpanCross
ThesenkouspancrossisoneofthelesserknowntradingstrategieswithintheIchimokuKinkoHyosystem.Thisismostlyduetothefactthatthesenkou
spancrosstendstobemorecommonlyusedasanadditionalconfirmationwithothertradingstrategiesratherthanbeingusedasastandalonetrading
strategyinitsownright.However,itisnonethelessasolidtrendtradingstrategyandcandefinitelybeusedonitsown.
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Giventhatthesenkouspancrossstrategy,likethekumobreakouttradingstrategy,utilizethekumoforsignalgeneration,itisbestemployedonthelonger
timeframesoftheDailychartandabove.ThesenkouspancrosssignalisgivenwhenthesenkouspanAlinecrossesoverthesenkouspanBlineofthe
kumo.IfthesenkouspanAcrossesthesenkouspanBfromthebottomup,thenitisabullishsignal.Ifitcrossesfromthetopdown,thenitisabearish
signal.Nevertheless,likealltradingstrategieswithintheIchimokuKinkoHyosystem,thesenkouspancrosssignalneedstobeevaluatedagainstthe
largerIchimoku"picture"beforecommittingtoanytrade.
Thethingtokeepinmindwiththesenkouspancrossstrategyisthatthe"cross"signalwilltakeplace26periodsaheadofthepriceactionasthekumois
timeshifted26periodsintothefuture.Thisrelationshipisobviouswhenonelooksatthecurrentpriceonalivechart,butlesssowhenlookingat
historicalpriceaction.Inaddition,whileallIchimokustrategiesshouldbeexercisedwiththelargerIchimokupictureinmind,thisisparticularly
importantwiththesenkouspancross.Thus,determiningtheoveralltrendonhighertimeframesfirstandthentakingonlysenkouspansignalsthatalign
withthattrendonthelowertimeframesisthebestimplementationofthesenkouspanstrategy.
Ingeneral,thesenkouspancrossstrategycanbeclassifiedintothree(3)majorclassifications:strong,neutralandweak.
STRONGSENKOUSPANCROSSSIGNAL
Astrongsenkouspancrosssignaltakesplacewhenthepricecurveisonthesideofthekumothatmatchesthesentimentofthe
senkouspancross.
NEUTRALSENKOUSPANCROSSSIGNAL
Aneutralsenkouspancrosssignaltakesplacewhenthepricecurveisinsidethekumoatthetimeofthesenkouspancross.
WEAKSENKOUSPANCROSSSIGNAL
Aweaksenkouspancrosssignaltakesplacewhenthepricecurveisontheoppositesideofthekumothatmatchesthe
sentimentofthesenkouspancross.
ThechartinFigureVIIbelowshowssomeclassificationsofthesenkouspancross.Thedashedverticallinesrepresentthe26periodrelationshipbetween
priceandthesenkouspancross.Thus,pointArepresentsabullishsenkouspancrossthatcanbecategorizedasa"strong"buysignalduetothefactthat
price(pointB),atthepointofthecross,wastradingabovethekumo.Likewise,pointCrepresentsabearishsenkouspancrossthatgeneratedastrong
sellsignalduetoprice'slocationatpointDbelowthekumo.ThesenkouspancrossatPointEgeneratedaneutralbuysignalsinceprice(pointF)was
tradingwithinthekumoatthatpoint.
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FIGUREVIISenkouSpanCrossClassifications
Entry
Theentryforthesenkouspancrosstradingstrategyisrelativelysimple,though,asmentionedabove,entriesdorequireevenmoreattentiontotheoverall
trendonhighertimeframesbeforeexecutinganytrades.Afterdeterminingthetrendonthehighertimeframes,thetraderlooksforafreshsenkouspan
crossinthesamedirectionastheoveralltrendthathasbeensolidifiedbyacloseontheexecutiontimeframe.Oncetheyidentifyasuitableopportunity,
theyinitiateapositioninthedirectionofthesenkouspansentiment.AsinallIchimokutradingstrategies,traderswillbewelladvisedtoconsiderthe
relativestrengthofthecross(visavisprice'slocationrelativetothekumo)aswellasthesentimentprovidedbytheremainingIchimokucomponentsat
thetimeofthecrossinordertoensurethemostoptimumentry.
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Itisworthmentioningherethatthestrongbull(buy)signaloutlinedinourfirstchartthattookplaceinAprilof2005,whiletechnicallystrongfroma1D
perspective,wasnotalignedwiththeoveralldowntrendinplaceontheWeeklyandMonthlycharts.Thus,traderstakingthistradesignalandusinga
senkouspancrossintheoppositedirectionastheirexitsignalwouldhaveactuallylostpips.Thisunderscorestheimportanceofevaluatingsentimenton
multipletimeframesandtradingwiththeoveralltrend.
Exit
Theexitfromasenkouspancrosstradeisgenerallysignalledbyasenkouspancrossintheoppositedirectionofthetrade,thoughotherexitsignalsmay
betakendependinguponthetrader'srisktoleranceandprofitgoals.
StopLossPlacement
Beinga"bigpicture"trendtradingstrategylikethekumobreakoutstrategy,thestoplossforthesenkouspancrossstrategyisplacedontheoppositeside
ofthekumothatthetradeistranspiringon,1020pipsawayfromthekumoboundary.
TakeProfitTargets
Whiletraditionaltakeprofittargetscanbeusedwiththesenkouspancrosstradingstrategy,itismoreinlinewiththelongtermtrendtradingapproachto
waitforasenkouspancrosstotranspireintheoppositedirectionofthetradebeforeclosingouttheposition.Thismethodallowsthetradetotakefull
advantageofthetrendwithoutclosingthetradeuntilpriceactiondictatesunequivocallythatthetrendisover.
CaseStudy
IntheDailychartinFigureVIIIbelowforUSD/CADwecanseeabearishsenkouspancrossatpointA.Thiscrosscorrespondstothecandleatpoint
B.Sincethecandleclosedjustbelowthekumo,thesignalisconsideredastrongonegiventhatitssentimentagreeswiththesentimentofthebearish
senkouspancross.Inaddition,weconfirmthatthedirectionofthissignalisalignedwiththeoveralldowntrendinplaceontheWeeklyandMonthlytime
frames,soweknowthatwearetradingwiththetrend.Nevertheless,wearewaryoftheflatbottomkumojusttotherightofthecandle,whichcouldact
asanattractorforprice,sowelookforaconservativeentrypointthatwillensurewewillnotgetcaughtinanyfalsebreakouts.Thelastchikouspan
supportat1.2292lookslikeagoodanchorpointforassuringthis.Priceclosesbelowthispointacoupleofdayslaterat1.2290andweentershortatpoint
C.
Forourstoploss,wefollowthekumobreakoutguidelineofplacingit1020pipsawayfromtheoppositesideofthekumowhereourtradeistaking
place.Inthiscase,weplaceit20pipsawayfromthetopofthekumoaboveourentrycandleatpointD(1.2542).
Onceweplaceourentryandstoplossorders,wewaitforthetradetounfoldwhilecontinuallymovingourstoplossdownwiththeprevailingkumo.In
thiscase,abitmorethanfourmonthslater,priceranginghascreatedafreshsenkouspancrossintheoppositedirectionofourtradeatpointE,
correspondingtothecandleatpointFwherewecloseoutourtradeat1.1908,nettingusover380pipsintheprocess.
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FIGUREVIIISenkouSpanCrossCaseStudy
ChikouSpanCross
ForthosethathavebeenusingtheIchimokuKinkoHyochartingsystemforanylengthoftime,utilizingthechikouspancrossstrategyshouldbelike
secondnature.Why?Becausethechikouspancrossisessentiallythe"chikouspanconfirmation"thatsavvyIchimokutradersutilizetoconfirmchart
sentimentbeforeenteringanytrade.Thisconfirmationcomesintheformofthechikouspancrossingthroughthepricecurveinthedirectionofthe
proposedtrade.Ifitcrossesthroughthepricecurvefromthebottomup,thenitisabullishsignal.Ifitcrossesfromthetopdown,thenitisconsidereda
bearishsignal.
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Thus,wealreadyknowthepowerofthechikouspancrossviaitsuseasaconfirmationstrategy.However,whenusedwithinsomesimpleguidelines,the
chikouspancrosscanbeusedasitsownstandalonetradingstrategywithverygoodsuccess.
LikemanyotherIchimokutradingstrategies,thechikouspancrossstrategyusesprice'srelationshiptothekumotocategorizeitssignalsintothree(3)
majorclassifications:strong,neutralandweak.
STRONGCHIKOUSPANCROSSSIGNAL
AstrongchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceisabovethekumo
AstrongchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceisbelowthekumo.
NEUTRALCHIKOUSPANCROSSSIGNAL
AneutralchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceiswithinthekumo
AneutralchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceiswithinthekumo.
WEAKCHIKOUSPANCROSSSIGNAL
AweakchikouspancrossBuysignaltakesplacewhenabullishcrosstakesplaceandcurrentpriceisbelowthekumo
AweakchikouspancrossSellsignaltakesplacewhenabearishcrosstakesplaceandcurrentpriceisabovethekumo.
ThechartinFigureIXbelowprovidesseveralexamplesofthechikouspancross.Giventhefactthatthechikouspanisameasureofclosingpriceshifted
26periodsintothepast,wemustalwayskeepinmindboththelocationofthechikouspaninrelationtothepricecurve(the"cross"itself)andthecurrent
candleanditsrelationtothekumo.Thus,PointA1isthepointwherethechikouspancrossedthepricecurvedownwardandPointA2istheclosing
candlethatinitiatedthatbearishcross.However,sincethecandleatPointA2wasabovetheprevailingkumoatthepointofthecross,thisparticular
signalwouldbecategorizedasa"weak"bearishcross.AstrongbullishcrosscanbeseeninPointsB1andB2sincethechikouspancrossedupward
throughthepricecurveandtheclosingcandleatthatpointintimewasabovetheprevailingkumo.PointsC1andC2representaweakbearishcross
giventhattheytranspiredabovetheprevailingkumo.
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FIGUREIXChikouSpanCrossClassifications
Entry
Theentryforthechikouspancrossisrelativelystraightforwardthetraderinitiatesapositioninthedirectionofthechikouspancrossaftertakinginto
considerationthecross'sstrengthandotherchartsignals.Forthehighestprobabilityofsuccess,thetraderwillalsolookforthechikouspanitselftobe
freeofthekumoasthechikouspancanofteninteractwiththekumomuchlikethepricecurve.
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Exit
Themosttraditionalexitforachikouspancrosstradeisgenerallysignalledbyachikouspancrossintheoppositedirectionofthetrade,thoughotherexit
signalsmaybetakendependinguponthetrader'srisktoleranceandprofitgoals.
StopLossPlacement
ThechikouspanstrategydoesnotdictateuseofanyparticularIchimokustructureforstoplossplacement,likesomeotherstrategiesdo.Instead,the
tradershouldconsidertheirexecutiontimeframeandtheirmoneymanagementrulesandthenlookfortheappropriateprevailingstructureforsettingtheir
stoploss.
TakeProfitTargets
Takeprofittargettingforthechikouspancrossstrategycanbeapproachedinoneoftwodifferentways.Itcanbeapproachedfromaday/swingtrader
perspectivewheretakeprofittargetsaresetusingkeylevels,orfromapositiontraderperspective,wherethetraderdoesnotsetspecifictargetsbut
ratherwaitsforthecurrenttrendtobeinvalidatedbyachikouspancrosstranspiringintheoppositedirectionoftheirtrade.
CaseStudy
IntheDailychartinFigureXbelowforUSD/CHFwecanseeabullishchikouspancrossatpointA.However,whileitistechnicallyastrongcross,the
chikouspanisstillbelowsignificantresistanceprovidedbythetwochikouspanpointsat1.2090.Inaddition,thetenkansenandkijunsenareinaflat
configurationwhichdoesn'tprovideanyadditionalconfirmation.ThuswewaitforamoreconvincingsetupbeforeenteringLong.Thisisachievedfive(5)
dayslateratPointB1whenthechikouspanmovesbackupthroughthepricecurveafterabriefdipbelow.Wewaitforthedailycandletocloseandthen
enterlongat1.2164atPointB2.Ourconfidenceinthisentryisincreasedbythebullishtenkansen/kijunsencrossthathassincetranspired.
Forourstoploss,weconsidertheprevailingstructuresanddecidetoplaceitjustbelowthekijunsenat1.1956,sinceacrossbelowthatpointwillnot
onlyhavethechikouspanexecutingafreshbearishcross,butalsohavepriceexecutingabearishkijunsencross,bothofwhichwouldinvalidateourlong
position.
Onceweplaceourentryandstoplossorders,wewaitforthetradetounfold.Dependinguponourtradingstyle,wecouldopttotrailourstoplossalong
withthekijunsentokeepatighterreinonriskmanagementorwecouldutilizethemoretraditionalmethodofwaitingforachikouspancrossinthe
oppositedirectionofourtrade.Inthiscase,achikouspancrossintheoppositedirectiontakesplacejustundertwomonthslater(PointC1)at1.2619
(PointC2)andwecloseoutourtradeforagainofover450pips.Itisworthnotingthat,eventhoughthechikouspancrossonitsownwouldbe
consideredtechnically"weak"duetoitslocationabovethekumo,itisbolsteredbyabearishtenkansen/kijunsencrosstoformabearishthreeline
pattern.Alternatively,ifwehadchosentousethekijunsenasourtrailingstopinthistrade,insteadofwaitingforachikouspancross,wewouldhave
exitedsomewherearoundthe1.2735level,whichwouldhavenettedusover560pips.
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FIGUREXChikouSpanCrossCaseStudy
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