The charting system of Ichimoku Kinko Hyo was developed by a Japanese newspaper man named Goichi Hosoda. He began developing this system before World War II with the help of numerous students that he hired to run through the optimum formulas and scenarios – analogous to how we would use computer simulated backtesting today to test a trading system. The system itself was finally released to the public in 1968, after more than twenty years of testing, when Mr. Hosoda published his book which included the final version of the system.
Ichimoku Kinko Hyo has been used extensively in Asian trading rooms since Hosoda published his book and has been used successfully to trade currencies, commodities, futures, and stocks. Even with such wild popularity in Asia, Ichimoku did not make its appearance in the West until the 1990s and then, due to the utter lack of information in English on how to use it, it was mostly relegated to the category of another “exotic” indicator by the general trading public. Only now, in the early 21st century, are western traders really beginning to understand the power of this charting system.
– IchiWiki
Even though I haven’t stopped using them, I haven’t written about Ichimoku charts in a long, long time. It’s time for me to correct that oversight. I was inspired to start posting the charts again after I noticed that stockcharts.com has a new article about them. The article does the best job I’ve seen in presenting how to use Ichimoku in a concise but complete way. If you’re at all interested, take a few minutes and read the article.
But here are the basics:
Source: stockcharts.com
I’m only going to use the English translation of these terms. The red line is the “standard line.” The blue line in the “turning line.” When the turning line is above the standard line, it’s bullish. When the turning line is below the standard line, it’s bearish.
The green line that lags behind is the “lagging line.” When it’s above the price of 26 days ago, it’s bullish. When it’s below the price, of 26 days ago, it’s bearish.
There are also the “leading lines” to the far right of the chart. When the first leading line (green) is above the second leading line (red) it’s bullish. When the opposite is true, it’s bearish.
Finally, there is the heart of the Ichimoku system — those red and green cloud-looking things. They are called — you guessed it — “clouds.” When the price is above the clouds the trend is up. That’s bullish. When the price is below the clouds the trend is down. That’s bearish.
That’s it. I know the chart looks complicated at first, but it really is that simple.
So let’s look at the Ichimoku charts for some major markets, starting with the stock market:
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