Journal of Technical Analysis - Market Technicians Association

42
Ichimoku Kinko Hyo
Véronique Lashinski, CMT
Goichi Hosoda, invented the cloud charts, or Ichimoku Kinko Hyo charts, in Japan before World War II. The method uses moving averages based on the middle
of the range over a period of time, then shifts the lines, in the past and in the future.
In this paper, we will compare hypothetical trading results in some US commodity futures markets, when using the base moving average crossover, with a few
combinations of the different filters provided by the method.
Outline Ichimoku Kinko Hyo on commodity futures
I- Description/overview of the cloud lines, and basic trade signals derived from these lines.
II- Tests.
II-A Trade entry on Kijun Sen/Tanken Sen crossover, with no other condition. Exit on reverse Kijun Sen/Tenkan Sen crossover, with no other condition.
II-B Trade entry on Kijun Sen/Tanken Sen crossover, adding both the Chikou Span and the cloud as filters. Exit when either condition no longer fulfilled.
Conclusion: did the Chikou Span improve results?
II-C Trade entry on Kijun Sen/Tanken Sen crossover, adding the market position relative to the cloud at the time of the signal as a filter. (above the cloud for buy,
under the cloud for sell) Exit on reverse Kijun Sen/Tenkan Sen crossover, with no other condition.
Conclusion: what is the impact of delaying the entry until the market position relative to the cloud confirms the outlook (above the cloud being bullish, and
under the cloud, bearish)?
II-D Trade entry on Kijun Sen/Tanken Sen crossover, adding the market position relative to the cloud at the time of the signal as a filter. (under the cloud for buy,
above the cloud for sell) Exit on reverse Kijun Sen/Tenkan Sen crossover, with no other condition.
Conclusion: does an aggressive entry, attempting to capture the move early make a difference?
II-E Trade entry on Kijun Sen/Tanken Sen crossover, adding the Chikou Span as filter. (above the Chikou Span for buy, under the Chikou Span for sell) Exit on
reverse Kijun Sen/Tenkan Sen crossover, with no other condition.
II- F Trade entry on Kijun Sen/Tanken Sen crossover, adding the Chikou Span as filter. (above the Chikou Span for buy, under the Chikou Span for sell) Exit on
reverse Kijun Sen/Tenkan Sen crossover, with no other condition.
In this case, all lines are calculated with the original six-day week assumption.
Conclusion: in the sample used, was it beneficial to have adapted the periods to the shorter working week?
I Description/Overview
Description/Overview of the cloud lines, and basic trade signals derived from these lines.
I-A Overview
A newspaper writer, Goichi Hosoda, invented the cloud charts, or Ichimoku Kinko Hyo charts, in Japan before World War II. The various lines are built from the
middle of the range over different periods, with some of the lines shifted in the future. One more line is made using the close, plot in the past.
Two of the lines are projected forward. The cloud is formed by the space between those two lines. As it is drawn in the future, it provides a unique, visual idea of
support and resistance in the future, not available in other techniques.
This paper focuses on the five basic lines of the cloud chart, which are readily available in many charting systems. Using back testing, the author compares
hypothetical results of trading systems based on the basic crossover in the method, using various combinations of the five lines, as added trade entry and/or exit filters.
Hosoda’s original definitions were based on a six-day working week in Japan when he developed the method (which included more than the cloud charts presented
below). As the author has adapted the cloud charts to a five-day working week in daily use, all the tests are based on the five-day working week assumption, except the
last one, which uses the six-day working week.
II-B Definitions of the Lines and Interpretations
Tenkan-Sen/Turning line: (Highest high + lowest low)/2, for the past seven trading days. (nine trading days, in the case of the six-day working week
environment) In other words, this is the middle of the range, over the past week and a half.
Kijun-Sen/Base line: (Highest high + lowest low)/2, for the past 22 trading days. (The period is changed to 26 trading days, in the case of the six-day working
week environment.)
This is the middle of the range, but this time over the past month.
Jo u r n a l of Technical Analysis • 2008 • Issue 65
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