Ichimoku Kinko Hyo roughly translates to “One Glance Equilibrium Chart” and is a trend identification system that consists of 6 different parts which together form the whole system.
The Ichimoku Kinko Hyo is a complete trading system. You can solely trade off of the Ichimoku system without ever drawing a trendline or a horizontal level. It gives you insight about potential current and future support / resistance levels and gives you immediate insight about the trend of the underlying asset you’re using it on. It can also be used as an indicator, giving you overbought / oversold signals, showing you potential trend changes and it can give you confluence with your own support / resistance levels. In the end it’s up to each individual on how they chose to use the Ichimoku Kinko Hyo.
It may look complicated, but once you understand how the system works you’ll be able to identify the trend of an asset just by looking at the chart for a few seconds, and from there you can engage either in deeper Ichimoku analysis and try to find a trade entry or move onto the next chart.
The chart examples I’m giving will all be cryptocurrency charts, since that’s the markets that I trade the most. Keep in mind though that the Ichimoku system is applicable to every single market, wether that’d be commodities, crypto currencies, forex etc.
To start things off I’ll introduce you to the 6 parts of the Ichimoku system and give you a brief explanation about what they do and how they’re calculated.
The Kijun-Sen is the base line of the Ichimoku system.
It’s the bread and butter for every Ichimoku trader since an interaction between price and the Kijun-Sen constitutes Equilibrium, which often is a great point to enter a trade in a trending market.
It’s a potential Support/Resistance level and tends to hold more value than the Tenkan-Sen (Conversion Line), due to it’s slower progression.
(highest high + lowest low)/2 for the past X periods
Since Traders can change their input settings for the Ichimoku Cloud I’m gonna give you the most common settings for the Kijun-Sen:
Standard settings: X = 26
Crypto settings: X = 30
Doubled Crypto settings: X = 60
The Tenkan-Sen is the conversion line of the Ichimoku system.
Like the Kijun-Sen, the Tenkan-Sen is a potential Support/Resistance level.
Due to it’s faster progression, it’s generally seen as weaker than the Kijun-Sen, and acts as a signal line for the Ichimoku system. If the Tenkan-Sen crosses the Kijun-Sen from beneath, it signals a bullish TK-Cross, and vice-versa for a bearish TK-Cross. These signals gain/lose strength depending on the position of the cross in relation to the cloud.
(Highest high + lowest low)/2 for the past X periods
Most common settings for the Tenkan-Sen:
Standard settings: X = 9
Crypto settings: X = 10
Doubled Crypto settings: X = 20
3) Chikou Span
The Chikou Span is also called Lagging Span, and the name is self-explanatory since it’s simply a line representing current candle closes, but X periods in the past, therefore lagging.
The position of the Chikou Span in relation to price / cloud / Tenkan-Sen / Kijun-Sen is an indication of strength for the current trend.
Interactions between the Chikou Span and other components of the cloud also give insight about potential support / resistance. Basically, old Kijun-Sen / Tenkan-Sen / Senkou-Span A / Senkou-Span B levels can still be relevant, and keeping an eye on the Chikou Span will make you keep those levels in mind.
Most common settings for the Chikou Span:
Standard settings: X = 26
Crypto settings: X = 30
Doubled Crypto settings: X = 30 (the offset does not get doubled)
4) Senkou-Span A
The Senkou-Span A is one of the two lines that form the cloud of the Ichimoku System and gives traders insight about potential support / resistance X periods projected into the future, demonstrating a rough estimate about where price would be trading based on current trend.
(Kijun-Sen + Tenkan-Sen)/2 for the past X periods
Most common settings for the Senkou-Span A:
Standard settings: X = 26 projected 26 periods into the future
Crypto settings: X = 30 projected 30 periods into the future
Doubled crypto settings: X = 60 projected 30 periods into the future
5) Senkou-Span B
The Senkou-Span B is the second of the two lines that form the cloud of the Ichimoku System. Same as the Senkou-Span A it gives traders insight about potential support / resistance X periods projected into the future.
(Highest High + Lowest Low)/2 for the past X periods
Most common settings for the Senkou-Span A:
Standard settings: X = 52 projected 26 periods into the future
Crypto settings: X = 60 projected 30 periods into the future
Doubled Crypto settings: X = 120 projected 30 periods into the future
6) Kumo, also called Cloud
The Cloud is formed by two extremities, by the Senkou-Span A and Senkou-Span B.
The difference between the Senkou-Span A and Senkou-Span B forms the cloud, which is either bearish or bullish, depending on what Span is currently at a higher level.
If the Senkou-Span A is higher than the Senkou-Span B the cloud is bullish, and vice-versa for a bearish cloud.
Reading the Ichimoku Kinko Hyo:
Now that we’ve established what components build the Ichimoku system we’ll transition into talking about how to read the system and how the different components interacting with each other give different signals of varying strength.
First we’ll lay out when the system is fully in sync and trend is the strongest.
In this case, the future cloud is bullish, meaning that the Senkou-Span A is higher than the Senkou-Span B. Price is trending above the cloud and above both the Kijun-Sen and the Tenkan-Sen. The Tenkan-Sen is above the Kijun-Sen and both lines are also above the cloud. Last but not least the Chikou Span will be trending above every single part of the cloud as well as price.
In this case, the future cloud is bearish, meaning that the Senkou-Span B is higher than the Senkou-Span A. Price is trending below the cloud and below both the Kijun-Sen and the Tenkan-Sen. The Tenkan-Sen is below the Kijun-Sen and both lines are also below the cloud. Chikou Span will also be trending below every single part of the cloud as well as price.
Now let’s talk about the different signals that the Ichimoku System can generate.
A Kijun Bounce is when price revisits the Kijun-Sen and bounces off of it.
This often happens when price is trending very aggressively. What happens is that price is trending away from Equilibrium and corrects back to the Kijun-Sen to establish Equilibrium again. From there it bounces and continues its trend. This can happen from either side, bullish if price tests the Kijun-Sen from above and bounces back up, bearish if price tests the Kijun-Sen from below and gets rejected. Traders can look for entries at the Kijun-Sen to catch corrections during a trend.
A TK Cross is the general term when the Tenkan-Sen crosses the Kijun-Sen. The strength of the signal depends on the position of the TK Cross in relation to the cloud and in relation to price. The signal is strongest if the cross is in sync with the cloud and price.
A bullish TK Cross, meaning the Tenkan-Sen crosses the Kijun-Sen from below, is strongest if the cross happens above the cloud and if price is above the cloud and the TK Cross.The signal becomes weaker if the cross happens inside the cloud and is the weakest if the cross happens below the cloud. These are early signals for a potential change in trend.
Same rules apply to bearish TK Crosses, meaning the Tenkan-Sen crosses the Kijun-Sen from above. If the cross happens below the cloud and if price is below the cloud and the cross, then it’s a strong bearish signal. Inside the cloud it’s a weaker bearish signal and above the cloud it’s the weakest bearish signal that the TK Cross can create.
Kumo Twists happen when the Senkou-Span A and the Senkou-Span B cross. This will look like a twist because the cloud switches color. A bullish Kumo Twist occurs when the Senkou-Span A crosses the Senkou-Span B from below, and vice-versa for a bearish Kumo Twist.
Generally speaking, a Kumo Twist is an early signal for a potential trend change in the future.
A C-Clamp is basically a Tenkan-Sen / Kijun-Sen Divergence. Price and the Tenkan-Sen are not in Equilibrium with the main trend and are forming a pattern that looks like a C together with the Kijun-Sen. This signal is active once price reclaims the Tenkan-Sen, and from there price is targeting the Kijun-Sen, also called Equilibrium.
An Edge-to-Edge (Abbr: E2E) trade is a trade that presents itself when price enters the cloud and closes inside. The idea is to enter on a close inside the cloud, or potentially on a retest of the Senkou-Span from which side price has entered, and to target the opposite span where price travels across the cloud.
A bullish E2E occurs when price enters the cloud from the bottom and travels across the cloud to the other span, vice-versa for a bearish E2E.
A Kumo Breakout is a bullish/bearish signal that occurs when price breaks out of the cloud, depending on the direction of the breakout. This signals strength depends on the color of the future cloud and on the positioning of the Chikou Span. If the direction of the breakout is in sync with the future cloud it’s considered as a strong signal. If it’s not, it’s considered a weak signal.
A trader can start looking for an entry on a retest of the Senkou-Span from which price previously broke out.
A strong bullish Kumo Breakout occurs when price breaks out of the cloud to the upside whilst the future cloud is bullish and when the Chikou Span is above the cloud, and vice-versa for a strong bearish Kumo Breakout.
If the future cloud hasn’t twisted bullish yet and price breaks out of the cloud to the upside or if the Chikou Span is still below or inside the cloud it’s still considered bullish, but it’s a weaker signal. Again, vice-versa for a bearish Kumo Breakout.
I’ve also seen people use only the cloud component of the Ichimoku system, which simplifies the whole thing a lot. Generally speaking, price above the cloud is bullish, price below the cloud is bearish. This is always the assumption. The other components of the cloud help strengthen the signals, and indicate how strong the trend is, and if a potential trend change is coming.
There’s no rule though that says you can’t use the cloud on its own, and I’ve seen a few people do that. They use the cloud component for a very quick glance at trend, without considering anything else, not even the color of the future cloud.
Examples of perfect trade entries based on the Ichimoku system:
Example of combining Ichimoku on multiple timeframes to catch bigger swing trades:
The trade activates with a 12h close inside the cloud. Price starts pumping from there and tries to travel through the cloud. Price corrects inside the cloud but stays above the Tenkan / Kijun, both on the daily as on the 12h, so it’s still bullish. You stay in the trade even though price dropped back out of the daily cloud.
Price reaches the 12h cloud top. This concludes the 12h E2E trade and you take some profit, but stay partially in your position since the daily E2E trade activated during the 12h E2E trade.
Price retests the 12h cloud top and you’ll be able to increase your size for the rest of the daily E2E. 12h cloud is fully bullish and the daily E2E is still active. Price resumes uptrend and reaches the daily cloud top target. This finalizes the trade.
This concludes my comprehensive guide on the Ichimoku Kinko Hyo.
Shoutout to #SatoshiMoku — CarpeNoctom , HackermanAce (Twitter), Seraphic (ForgetHODLing on Twitter) and CryptoCred since I learned a lot from these people about Ichimoku. Also, thanks a lot to ChaosTrader63 (Youtube) for his numerous free videos on Ichimoku.
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Disclaimer: None of the aforementioned methods will make you a profitable trader if you don’t have sufficient discipline in managing risk and being patient, picking only the best signals. This is not financial advice and this guide is based on my own experience and simply reflects my views on the matter.