Ichimoku Kinko Hyo for NinjaTrader 8
Part of the Moving Average PRO Indicator
The goal of this system is to give you information about:
- Sentiment
- Momentum
- Strength of Trend
It also gives a quick indication if price is in relative equilibrium or disequilibrium.
This trading system was developed by a Japanese man named Goichi Hosoda. He named it “Ichimoku Kinko Hyo”, which translates to “Equilibrium chart at a glance”. This appropriately describes the system and how it is to be used.
This indicator is bundled with the Moving Average Pro indicator. As with all our indicators, colors and appearance are highly customizable!
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Components
This system contains five components, meant to be used in conjunction with each other.
- Tenkan Sen (“Turning Line”, Red) – (Highest High + Lowest Low) / 2 of the last 9 periods
- Kijun Sen (“Standard Line”, Blue) – (Highest High + Lowest Low) / 2 of the last 26 periods
- Chikou Span (“Lagging Line”, Purple) – Current Closing Price, time-shifted into the past 26 periods
- Senkou Span A (“1st leading Line”) – (Tenkan Sen + Kijun Sen) / 2, time-shifted into the future 26 periods
- Senkou Span B (“2nd leading Line”) – (Highest High + Lowest Low) / 2, of the last 52 periods, time-shifted into the future 26 periods
The 1st and 2nd leading lines (Senkou Span A and B) create the Kumo or “cloud”.
The default settings are 9, 26 and 52. These numbers were derived from the standard Japanese business month (26, including Saturdays). The number 9 represents a week and a half. Finally, the number 52 represents two months (26 times 2).
Tenkan Sen (‘Turning Line’, red line)
Usage
Measures short-term trend, provides level of support/resistance, and an indication of short-term momentum.
Unlike a typical moving average this is an average of the highest high and lowest low over a period of time. This can cause the line to go “flat” or sideways, indicating equilibrium. Thus, the angle of the line can be an indication of momentum. A steeply angled line is bullish/bearish, where a sideways line is lacking momentum.
Price closing above/below the line can give an early indication of a trend change. However, due to the fast nature of the line, it must be confirmed by other means.
The turning line and the standard line (mentioned below) are meant to be paired together (red and blue lines).
Kijun Sen (‘Standard Line’, blue line)
Usage
Measures short-term trend, provides level of support/resistance, and an indication of short-term momentum.
The Kijun Sen is calculated the same way as the Tenkan Sen, so they give similar information. However, the Kijun Sen is calculated over a longer period of time and is a slower moving line of the two. Thus, this gives a more reliable indication of short-term trend and momentum than the Tenkan Sen.
The cross of these two lines can provide a signal as well. Tenken Sen above Kijun Sen (red line above blue line) is bullish. Tenken Sen below Kijun Sen (red line above blue line) is bearish.
The turning line and the standard line (red and blue lines) are meant to be paired together (similar to the Senkou Span A/B lines, mentioned below). This is a similar concept to a pairing of a slow and a fast moving average and analyzing their relationship to each other. Because these two lines are used together, there is an option to fill the area between them (like the cloud), discussed later.
Chikou Span (‘Lagging Line’, purple line)
Usage
Measures medium-term trend.
By time-shifting the current price back by 26 periods, we can see where the current closing price is relative to the past. If the Chikou Span is above the price of 26 periods ago, then it’s bullish. If it’s below, then it’s bearish.
When looking at the relationship of the lagging line and historical prices, it’s important to remember that the lagging line was shifted backward when it was happening in real time.
This is a very important indication of sentiment that should be consulted with every trading decision with this system!
Senkou Span A/B and the Kumo (‘Cloud’)
Usage
Measures longer-term trend, support/resistance, and volatility.
The Senkou Span A is shifted forward 26 periods (1 month), based on an average of the Tenkan Sen and Kijun Sen (red and blue lines).
The Senkou Span B is an average of the Highest High and Lowest Low over 52 periods (2 months), then shifted forward 26 days (1 month). Due to the long period length and the calculation method, this line will see the longest periods of sideways/flat movements (equilibrium).
These are the longest term lines in the system. Together they form the “kumo” or “cloud”, which is the shaded area between the two lines.
Like the “turning” and “standard” lines (red and blue lines), the crossing of these two lines can give a bullish or bearish signal as well. This “cross” is sometimes labeled as a “twist” as it looks like the twisting of a two-sided ribbon.
When price is above the cloud, it’s a sign of bullish sentiment, since current price is higher than the historical average. Conversely, if price is below the cloud, it means there is a stronger bearish sentiment. Finally, trading within the cloud itself is risky, since it means that price is currently in equilibrium. It’s wise to wait for price to leave the middle of the cloud and trade in the newly established trend.
The thicker the cloud, the more volatility and the greater the support/resistance it will provide. The thinner the cloud, the less volatility.
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Now that you understand the lines, how can you use them?
As mentioned earlier, all the lines are meant to be used in conjunction with each other. Each strategy outlined below should be used with the overall system’s picture in mind!
When looking at the various components of this system, each piece is telling a different story.
Tenkan Sen/Kijun Sen Cross (‘TK Cross’)
- Strong Buy: Red line crosses above the blue line and the cross itself is above the cloud.
- Weak Buy: Red line crosses above the blue line and the cross itself is below the cloud.
- Neutral Buy/Sell: Cross occurs inside the cloud. Wait for a close outside the cloud (in the direction of the signal) for confirmation.
- Weak Sell: Red line crosses below the blue line and the cross itself is above the cloud.
- Strong Sell: Red line crosses below the blue line and the cross itself is below the cloud.
As always, the position of the Chikou Span (lagging, purple line) must be in agreement with the above signals. For example, if the lagging line is in a bullish position, it can give more strength to a “strong buy” Tenkan Sen/Kijun Sen cross.
Price/Kijun Sen Cross
- Strong Buy: Price closes above the blue line, which occurs above the cloud.
- Weak Buy: Price closes above the blue line, which occurs below the cloud.
- Neutral Buy/Sell: Cross occurs inside the cloud. Wait for a close outside the cloud (in the direction of the signal) for confirmation.
- Weak Sell: Price closes below the blue line, which occurs above the cloud.
- Strong Sell: Price closes below the blue line, which occurs below the cloud.
Since the Kijun Sen line is a trigger for the trade, it can also act as a stop-loss position as well. Placing your stop a few ticks on the other side of this standard line is a trading idea.
As always, the position of the Chikou Span (lagging, purple line) must be in agreement with the above signals. For example, if the lagging line is in a bullish position, it can give more strength to a “strong buy” price/Kijun Sen cross.
Kumo (‘Cloud’) Breakout
- Buy: Price closes above the cloud (preferably in a bullish trend)
- Sell: Price closes below the cloud (preferably in a bearish trend)
For an additional indication of strength, use the position of the Chikou Span (lagging, purple line) for additional confirmation.
Senkou Span Cross
- Strong Buy: “A” line crosses above the “B” line and price is above the cloud.
- Weak Buy: “A” line crosses above the “B” line and price is below the cloud.
- Neutral Buy/Sell: Cross occurs when price is inside the cloud. Wait for a close outside the cloud (in the direction of the signal) for confirmation.
- Weak Sell: “A” line crosses below the “B” line and price is above the cloud.
- Strong Sell: “A” line crosses below the “B” line and price is below the cloud.
Since the Senkou Span lines are time-shifted into the future, the cross will happen in front of current price. This is important to keep in mind when looking at historical data. In other words, when the cloud changes colors, the signal actually occurred 26 periods in the past from that point.
As always, the position of the Chikou Span (lagging, purple line) must be in agreement with the above signals. For example, if the lagging line is in a bullish position, it can give more strength to a “strong buy” Senkou Span A/B cross.
Chikou Span Cross
- Strong Buy: Chikou Span crosses above time-shifted price and current price is above the cloud.
- Weak Buy: Chikou Span crosses above time-shifted price and current price is below the cloud.
- Neutral Buy/Sell: Cross occurs when current price is inside the cloud. Wait for a close outside the cloud (in the direction of the signal) for confirmation.
- Weak Sell: Chikou Span crosses below time-shifted price and current price is above the cloud.
- Strong Sell: Chikou Span crosses below time-shifted price and current price is below the cloud.
Since the Chikou Span line is time-shifted into the past, the cross will happen behind current price. This is important to keep in mind when looking at historical data. In other words, when the purple line crosses price, the signal actually occurred 26 periods in the future from that point.
Summary of Ways this System Indicates Bias
- Chikou Span (purple) in relation to the time-adjusted price
- Tenkan Sen/Kijun Sen Cross (red/blue cross, Turning Line and Standard Line cross)
- Cloud cross (the two lines that make up the “cloud”)
- Price above or below the Kijun Sen (Standard Line, blue line)
- Price above or below the Cloud
With so many lines, it can look a bit daunting to see what it’s telling you!
To help with this, the Moving Average PRO indicator has the option to display a summary of these statuses, as shown below (and on many of the screenshots above). The words are color-coded based on the color of the line. For example, the Tenkan Sen line is red, while the Kijun Sen line is blue, so their labels reflect that. Further, the “Buy” or “Sell” labels are colored based on the configurable color of the cloud.
To further help with analysis, the Moving Average PRO indicator has the option to fill in the area between the Tenkan Sen and Kijun Sen (red/blue) lines, as shown below.
This helps quickly see where the lines are on the chart and their relative position to each other. Compare the screenshot below to the screenshot above to see how this can help.
The summary is very useful in seeing the bias of the various lines. What’s even more useful is seeing this information in Market Analyzer!
Which matches the information shown in the Bias Summary on the chart itself.
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