Technical Analysis Workshop Series

Week 9
Ichimoku Kinko Hyo
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INTRODUCTION REVERSAL PRACTICE

PATTERNS
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SUPPORT &
REVERSAL TRENDLINES & PIVOT
CHART TYPES
RESISTANCE
PATTERNS CHANNELS POINTS
S
 Content
• Introduction to Ichimoku
• Components of Ichimoku
• Trading Strategies
• Case Studies
• Conclusion
 Introduction to Ichimoku

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Ichimoku
• Ichimoku Kinko Hyo – “Equilibrium at a
glance”
• A trend trading system
• Developed by Goichi Hosoda in 1930s
• Candlestick charting complements Ichimoku
• Concept similar to moving averages

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Ichimoku

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Components
• 5 main components in Ichimoku,
I. Tenkan Sen (“Conversion Line”)
II. Kijun Sen (“Base Line”)
III. Chikou Span (“Lagging Line”)
IV. Senkou Span A (“Leading Span A”)
V. Senkou Span B (“Leading Span B”)

PLUS 1 additional: Kumo (“Cloud”)

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Components
Chikou Span

Senkou A

Kijun
Tenkan
Senkou B

Kumo

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Component 1 – Tenkan Sen
• Tenkan Sen
(“Conversion
Line”) –
Plotted by
calculating
(High +
Low)/2 of last
9 days

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Component 2 – Kijun Sen
• Kijun Sen
(“Base Line”)
– Plotted by
calculating
(High +
Low)/2 of last
26 days

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Component 3 – Chikou Span
26 days • Chikou Span
(“Lagging
Line”) – Close
26 days
of today’s
price, shifted
26 days back

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Component 4 – Senkou Span A
• Senkou Span
A (“Leading
Span A”) –
(Conversion +
26 days Base Line)/2,
plot 26 days
forward

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Component 5 – Senkou Span B
• Senkou Span
B (“Leading
Span B”) –
(High +
Low)/2 of last
52 days, plot
26 days
26 days forward

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Additional Component - Kumo
• Kumo
(“Cloud”) –
Area
between
Senkou Span
A and B

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Short Summary
• Tenkan/Kijun Sen – Similar to moving averages
• Chikou Span – Shows current price relative to 26
days ago (bullish or bearish)
• Senkou A – average of past 26 T/K shifted forwards
by 26 (indicating short term equilibrium)
• Senkou B – average of past 52 T/K shifted forwards
by 26 (indicating long term equilibrium)
• Kumo – Area between Senkou A&B – forms S/R area

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 The Kumo - 雲
• Kumo is the
most
prominent
and
important
feature of the
Ichimoku
system.

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Interpreting the Kumo

Main function of the Kumo is to

provide direction and areas of
support and resistance (S/R)

Which mainly depends on size,

position and colour of the cloud.

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Interpreting the Kumo (Position)

• Price below
cloud – Bearish

• Price above
cloud - Bullish

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Interpreting the Kumo (Colour)

• Pink – Bearish
• Blue – Bullish
• (actually depends on what
colour you choose..)

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Interpreting the Kumo (Size)

• Thin cloud –
weak S/R

• Thick cloud –
strong S/R

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Trading Strategies
Warning
Ichimoku is a system that make use of the 5+1
components together to produce higher
probability trades.

Attempts to use the following isolated trading

strategies may produce mixed long term success at
best

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Trading Strategies
Signals produced by the isolated strategies are
usually ranked by strength when checking for
confluence with the other components

i.e. Strong, neutral, weak signals

(Examples will be shown)

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Trading Strategies Introduction
• 5 Strategies
1. Tenkan/Kijun Cross
2. Kijun Sen Cross More commonly used

3. Kumo Breakout
4. Senkou Span Cross
5. Chikou Span Cross

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 1 – T/K Cross (Strong)
• Strong signal
for buy.
Tenkan(pink)
crossed above
Kijun(Blue)
• Chikou above
cloud/price
• Price above
cloud

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 1 – T/K Cross Result
• A nice
uptrend, with
another
additional
long
opportunity a
month later

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 1 – T/K Cross (Weak)
• Weak signal
to short the
market
• Price above
cloud
• Chikou above
cloud/price

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 1 – T/K Cross (Neutral)
• Neutral signal
to buy
• Price above
cloud
• Chikou above
cloud/price
• BUT cross
happened in
the cloud

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 2 – Price/Kijun Cross

Green arrows – Strong signals

Red arrows – neutral/weak signals

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Strategy 3 – Kumo Breakout

Green arrows – Strong signals

Red arrows – neutral/weak signals

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Case Study 1a - Olam 21 Jan 2013

Possible Strategy – Wait and

see, if it breaks cloud

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Case Study 1b - Olam 14 Mar 2013

Cloud breaks – but weakly

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Case Study 2a – Apple Inc 18 Jan 2013

Possible Strategy – buy a put

option (ATM/OTM)

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Case Study 2b – Apple Inc 13 Mar 2013

Profit! Close to $70/share

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 18 Jan 2013

Case Study 3a – Ralph Lauren Corp

Possible Strategy – don’t use

ichimoku! Rely on traditional
S/R methods

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 18 Jan 2013

Case Study 3b – Ralph Lauren Corp

Ichimoku won’t work well in

sideway markets!

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Conclusion
• Ichimoku is a powerful trend following system
• Traditional methods of S/R can be
incorporated to determine target prices
• Do not follow the system blindly, be flexible!

Note:
The content is not exhaustive, there are a lot
more things to Ichimoku than what’s covered
in this lesson!

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Further Readings
• www.kumotrader.com/ichimoku_wiki/

• Trading with Ichimoku Clouds

by Manesh Patel

INTRODUCTION COMPONENTS STRATEGIES CASE STUDIES CONCLUSION

 Thank You! 

CHART SUPPORT &

CONSTRUCTION RESISTANCE
 Q&A

CHART SUPPORT &

CONSTRUCTION RESISTANCE