Technical analysis Technical indicators

Ichimoku Kinko Hyo: Checking the Effectiveness of Its Signals

Elena Berseneva 02 march 2022 248 4

The Ichimoku Kinko Hyo is one of the instruments which is a complex trading strategy. 

 

Ichimoku was developed by the Japanese analyst Goichi Hosoda who used to be known as Ichimoku Sanjin for his analysis of stock markets in the 1930s. With the passage of time, it started to be used in other markets. The indicator is used to determine market trends, levels of support and resistance, and for generation of buy and sell signals.


Ichimoku is included in the base set of popular trading platforms and consists of five lines on the chart. 


To determine the sizes of parameters, four time intervals of different lengths are used. These intervals are used in determining values for distinct lines comprising this indicator:

  • Tenkan-Sen characterizes the short-term price movement or a “small trend/reversal”. It is calculated as the first median interval with the following formula: (High+Low)/2.

By default, 9 calculation periods are used. The greater the tilt angle, the stronger the short-term trend. Thus, it works the same as a strong level of support/resistance.

  • Kijun-Sen indicates the direction of a “long” trend and is the main element of Ichimoku. If the market moves above the line, the probability of a continuation of the uptrend is high. And it is necessary to seek a confirmation of a buy signal and, respectively, a continuation of the downtrend will lie below it and only sells (SELL) have to be considered. It is the moving average with Period 26.
  • Senkou Span A (Kumo Up) is the first leading line of Ichimoku which is the average of the range between Tenkan-Sen and Kijun-Sen moved forward by its period.
  • Senkou Span B (Kumo Down) is the second leading line viewed as the middle line moved forward by the period of Kijun-Sen (52 by default). Ichimoku displays the hatched area between Senkou Span A and B called «Cloud» (Kumo). If the price moves inside, that means that there is a period of consolidation, boundaries are viewed as a strong resistance.
  • Chinkou Span. The last 5th line is the price chart for closing prices moved forward by the period of Kijun-Sen.
Hypothesis
To conclusion

The author’s system of Ichimoku signals is profitable.

To conclusion

The method of event determination

 

1.   The crossing of the Tenkan and Kijun lines

  • when Tenkan crosses Kijun bottom-up, this indicates a bearish signal (the cloud must be above the price).
  • when Tenkan crosses Kijun top-down, this indicates a bullish signal (the cloud must be below the price).
A buy signal
Tenkan[i] > Kijun[i]
Tenkan[i-1] < Kijun[i-1]
High[i] < Senkou A
High[i] < Senkou B
A sell signal
Tenkan[i1] < Kijun[i1]
Tenkan[i1-1] > Kijun[i1-1]
Low[i1] > Senkou A
Low[i1] > Senkou B



2. The price exit from Cloud 

Buy signal
SenkouA < SenkouB
Close[i-1] < Senkou B[i-1]
Close[i-2] < Senkou B[i-2]
Close[i-3] < Senkou B[i-3]
Close[i] > Senkou B[i]
Or
Senkou A > Senkou B
Close[i-1] < Senkou A[i-1]
Close[i-2] < Senkou A[i-2]
Close[i-3] < Senkou A[i-3]
Close[i] > Senkou A[i]
Sell signal
SenkouA > SenkouB
Close[i1-1] > Senkou B[i1-1]
Close[i1-2] > Senkou B[i1-2]
Close[i1-3] > Senkou B[i1-3]
Close[i1] < Senkou B[i1]
Or
Senkou A < Senkou B
Close[i1-1] > Senkou A[i1-1]
Close[i1-2] > Senkou A[i1-2]
Close[i1-3] > Senkou A[i1-3]
Close[i1] < Senkou A[i1]



3. The crossing of Senkou A and Senkou B

Buy signal
Senkou A[i] > Senkou B[i]
Senkou A[i-1] < Senkou B[i-1]
Sell signal
Senkou A[i1] < Senkou B[i1]
Senkou A[i1-1] > Senkou B[i1-1]



4. The bounce from the Tenkan line (the blue line)

Buy signal
Tenkan[i] >Tenkan[i-1]
Low[i-2] > Tenkan[i-2]
Low[i-3] > Tenkan[i-3]
Close[i-1] < Tenkan[i-1]
Close[i] > Tenkan[i]
Or
Tenkan[i1] >Tenkan[i1-1]
Low[i1-1] > Tenkan[i1-1]
Low[i1-2] > Tenkan[i1-2]
Low[i1] < Tenkan[i1]
Close[i1] > Tenkan[i1]
Sell signal
Tenkan[i3] < Tenkan[i3-1]
High[i3-2] < Tenkan[i3-2]
High[i3-3] < Tenkan[i3-3]
Close[i3-1] > Tenkan[i3-1]
Close[i3] < Tenkan[i3]
Or
Tenkan[i2] <Tenkan[i2-1]
High[i2-1] < Tenkan[i2-1]
High[i2-2] < Tenkan[i2-2]
High[i2] > Tenkan[i2]
Close[i2] < Tenkan[i2]



5. The bounce from the Kijun line (the red line)

Buy signal
Kijun[i1] >Kijun[i1-1]
Low[i1-2] > Kijun[i1-2]
Low[i1-3] > Kijun[i1-3]
Close[i1-1] < Kijun[i1-1]
Close[i1] > Kijun[i1]
Or
Kijun[i] > Kijun[i-1]
Low[i-1] > Kijun[i-1]
Low[i-2] > Kijun[i-2]
Low[i] < Kijun[i]
Close[i] > Kijun[i]
Sell signal
Kijun[i] < Kijun[i-1]
High[i-2] < Kijun[i-2]
High[i-3] < Kijun[i-3]
Close[i-1] > Kijun[i-1]
Close[i] < Kijun[i]
Or
Kijun[i1] < Kijun[i1-1]
High[i1-1] < Kijun[i1-1]
High[i1-2] < Kijun[i1-2]
High[i1] > Kijun[i1]
Close[i1] < Kijun[i1]



6. The bounce from Senkou A (the lilac line) and Senkou B (the orange dotted line)

Buy signal
Low[i1-2] > Senkou A[i1-2]
Low[i1-3] > Senkou A[i1-3]
Close[i1-1] < Senkou A[i1-1]
Close[i1] > Senkou A[i1]
Or
Low[i-1] > Senkou A[i-1]
Low[i-2] > Senkou A[i-2]
Low[i] < Senkou A[i]
Close[i] > Senkou A[i]
Sell signal
High[i-2] < Senkou A[i-2]
High[i-3] < Senkou A[i-3]
Close[i-1] > Senkou A[i-1]
Close[i] < Senkou A[i]
Or
High[i1-1] < Senkou A[i1-1]
High[i1-2] < Senkou A[i1-2]
High[i1] > Senkou A[i1]
Close[i1] < Senkou A[i1]


Buy signal
Low[i1-2] > Senkou B[i1-2]
Low[i1-3] > Senkou B[i1-3]
Close[i1-1] < Senkou B[i1-1]
Close[i1] > Senkou B[i1]
Or
Low[i-1] > Senkou B[i-1]
Low[i-2] > Senkou B[i-2]
Low[i] < Senkou B[i]
Close[i] > Senkou B[i]
Sell signal
High[i-2] < Senkou B[i-2]
High[i-3] < Senkou B[i-3]
Close[i-1] > Senkou B[i-1]
Close[i] < Senkou B[i]
Or
High[i1-1] < Senkou B[i1-1]
High[i1-2] < Senkou B[i1-2]
High[i1] > Senkou B[i1]
Close[i1] < Senkou B[i1]



7. The bounce of the line of Senkou B (The orange dotted line)

Buy signal
SenkouA < SenkouB
Close[i-1] < Senkou B[i-1]
Close[i-2] < Senkou B[i-2]
Close[i-3] < Senkou B[i-3]
Close[i] > Senkou B[i]
Sell signal
SenkouA > SenkouB
Close[i-1] > Senkou B[i-1]
Close[i-2] > Senkou B[i-2]
Close[i-3] > Senkou B[i-3]
Close[i] < Senkou B[i]



8. Three lines signal 

Buy signal
Tenkan > Kijun
Kijun> SinkouA
Kijun > Sinkou B
Tenkan[i] >Tenkan[i-1]
Low[i-2] > Tenkan[i-2]
Low[i-3] > Tenkan[i-3]
Close[i-1] < Tenkan[i-1]
Close[i] > Tenkan[i]
Or
Tenkan > Kijun
Kijun > Sinkou A
Kijun > Sinkou B
Tenkan[i1] >Tenkan[i1-1]
Low[i1-1] > Tenkan[i1-1]
Low[i1-2] > Tenkan[i1-2]
Low[i1] < Tenkan[i1]
Close[i1] > Tenkan[i1]
Sell signal
Tenkan < Kijun
Kijun < Sinkou A
Kijun < Sinkou B
Tenkan[i] <Tenkan[i-1]
High[i-2] < Tenkan[i-2]
High[i-3] < Tenkan[i-3]
Close[i-1] > Tenkan[i-1]
Close[i] < Tenkan[i]
Or
Tenkan < Kijun
Kijun < Sinkou A
Kijun < Sinkou B
Tenkan[i] <Tenkan[i-1]
High[i-1] < Tenkan[i-1]
High[i-2] < Tenkan[i-2]
High[i] > Tenkan[i]
Close[i] < Tenkan[i]



9. The crossing of the price and the Chinkou Span line (the green line)

Buy signal
Low[2] > ChinkouSpan[2]
Low[3] > Chinkou Span[3]
Low[4] > Chinkou Span[4]
Low[1] < ChinkouSpan[1] < High[1]
Buying at the 27th candlestick after a signal
Sell signal
High[6] < ChinkouSpan[6]
High[7] < Chinkou Span[7]
High[8] < Chinkou Span[8]
Low[5] < ChinkouSpan[5] < High[5]
Selling at the 27th candlestick after a signal



The conditions for opening and closing trading positions

Once the signal has been formed, appropriate positions open at the opening of the next candlestick.

 

Closing a position is set in 3 time options:

  • At the close of the 5th candlestick after the market entry;
  • At the close of the 10th candlestick after the market entry;
  • At the close of the 15th candlestick after the market entry.
Data used

The list of financial instruments and timeframes for the test:

  • 25 currency pairs (Forex);
  • 6 commodity futures (Commodities);
  • 2 US stock indices (US indices);
  • 30 US stocks (US stocks);
  • 58 RF stocks (RF stocks);
  • 1 RF stock index (the RF index).


Timeframes used:

  • H1 (1 hour): the history covers the period of 5 years,
  • D1 (1 day): the history covers the period of 10 years.


The total number is 1 979 867 values for every signal.

Having determined all the conditions and set all the necessary parameters, we can start testing!




Analysis of the results


Let us assess the results with the sample size.

 


The total number of candlesticks and events with two timeframes together:


Signal
Number of candlesticks
Number of events
Breakdown of Senkou B
1979867
34726
Crossing of Senkou A and Senkou B
1979867
48119
Crossing of Tenkan and Kijun
1979867
32655
Crossing of the price and Chinkou Span
1979867
77587
Exit from Cloud
1979867
60355
Bounce from Kijun
1979867
26810
Bounce from Senkou A / Senkou B
1979867
85927
Bounce from Тenkan
1979867
81141
3 lines
1979867
36226



Then we will see the share of events in the total number of initial candlesticks in % jointly with two timeframes:


Market segment / Signal
Forex
Commodities
US indices
RF index
US stocks
RF stocks
Average
Breakdown of Senkou B
1.7
1.7
1.7
1.7
1.8
1.8
1.7
Crossing of Senkou A and Senkou B
2.4
2.3
2.2
2.3
2.4
2.5
2.4
Crossing of Tenkan and Kijun
1.6
1.5
1.5
1.8
1.6
1.7
1.6
Crossing of the price and Chinkou Span
4.0
3.5
3.6
4.1
3.8
4.0
3.8
Exit from Cloud
3.0
2.9
2.9
2.9
3.1
3.1
3.0
Bounce from Kijun
1.4
1.1
1.1
1.3
1.1
1.5
1.3
Bounce from Senkou A / Senkou B
4.3
3.9
3.8
3.9
3.9
4.7
4.1
Bounce from Тenkan
4.3
3.7
3.9
4.3
3.6
4.2
4.0
3 lines
1.9
1.6
1.7
1.9
1.7
1.9
1.8



According to the results of grouping we can conclude that, irrespective of the market segment, the distribution of signals is almost the same. 

It should be noted that among the 100 candlesticks on the chart, around 4 times the following signals of Ichimoku are present: «The crossing of the price and the line of Chinkou Span», «The bounce of the price from the cloud boundaries of Senkou A and Senkou B», «The bounce of the price from the line of Tenkan». The rest of signals are met more rarely.

 


Now we will look at the results of the performance of Ichimoku signals.

 

We will assess the results with the two following criteria:

  • Momentum (m) reflects the average change in quotes of financial instruments at the moment of the closing of positions, in %. A positive value of momentum indicates the profitability of signal performance, a negative value indicates loss-making.
  • SPP, the share of profitable positions, %.

 


We take the following notations:

«H1 / 5» is closing a position at the 5th candlestick over the 1-hour timeframe;

«H1 / 10» is closing a position at the 10th candlestick over the 1-hour timeframe;

«H1 / 15» is closing a position at the 15th candlestick over the 1-hour timeframe;

«D1 / 5» is closing a position at the 5th candlestick over the 1-day timeframe;

«D1 / 10» is closing a position at the 10th candlestick over the 1-day timeframe;

«D1 / 15» is closing a position at the 15th candlestick over the 1-day timeframe;

 


Volatility coefficient:

  • Over the daily timeframe: the ratio of the average volatility of 5 candlesticks after opening a position to the average volatility of 20 candlesticks preceding to the closing opening a position.
  • Over the 1-hour timeframe: the ratio of the average volatility of 5 candlesticks after opening a position to the average volatility of the same hours during the 4 preceding days.

 

Values of the volatility coefficient greater than 1 indicate a greater volatility following the signal in comparison with volatility before the signal; values less than 1 imply the opposite.

 

 

The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (the breakdown of Senkou B)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
29439
-0.036
46.7
1.052
H1/10
29427
-0.009
47.6
1.052
H1/15
29419
-0.012
47.9
1.052
D1/5
5287
0.065
50.3
1.066
D1/10
5272
0.049
49.3
1.066
D1/15
5256
0.022
48.9
1.066



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (the crossing of Senkou A and Senkou B)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
40648
-0.006
48.6
0.987
H1/10
40633
-0.006
49.1
0.987
H1/15
40627
-0.006
49.4
0.987
D1/5
7471
-0.094
48.6
0.999
D1/10
7457
0.065
50.0
0.999
D1/15
7446
0.130
50.1
0.999



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (the crossing of Tenkan and Kijun)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
27589
-0.031
47.6
0.950
H1/10
27577
-0.036
47.6
0.950
H1/15
27567
-0.053
48.4
0.950
D1/5
5066
-0.011
48.8
0.980
D1/10
5056
-0.168
49.0
0.980
D1/15
5052
-0.189
48.7
0.980



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (the crossing of the price and Chinkou Span)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
65533
-0.023
47.6
0.937
H1/10
65499
-0.016
48.7
0.937
H1/15
65488
-0.027
48.7
0.937
D1/5
12054
0.015
49.1
0.994
D1/10
12034
-0.061
49.1
0.994
D1/15
12011
-0.156
49.0
0.994



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (the exit from cloud)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
51235
-0.036
46.5
1.047
H1/10
51216
-0.018
47.6
1.047
H1/15
51197
-0.030
47.6
1.047
D1/5
9120
0.142
51.1
1.048
D1/10
9101
0.158
50.4
1.048
D1/15
9082
0.155
49.7
1.048



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (The bounce from Kijun)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
23025
-0.016
48.8
1.081
H1/10
23019
0.020
49.2
1.081
H1/15
23012
0.026
50.0
1.081
D1/5
3785
0.056
50.0
1.069
D1/10
3779
0.068
50.2
1.069
D1/15
3774
0.231
50.5
1.069



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (The bounce from Senkou A / Senkou B)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
72757
0.006
49.8
1.002
H1/10
72733
0.007
49.8
1.002
H1/15
72709
0.022
50.2
1.002
D1/5
13170
0.004
50.1
1.001
D1/10
13153
0.041
50.6
1.001
D1/15
13133
0.053
50.8
1.001



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (The bounce from Тenkan)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
69191
0.005
48.2
1.038
H1/10
69160
0.028
48.1
1.038
H1/15
69147
0.020
48.7
1.038
D1/5
11950
0.154
50.3
1.012
D1/10
11928
0.162
50.6
1.012
D1/15
11908
0.188
50.6
1.012



The Number of signals, the Momentum, the Share of profitable positions and Volatility coefficient on a term-to-term basis of the hold of positions and timeframes (Three lines signal)


Timeframe/Closing
Number of events
Momentum
SPP
Volatility coefficient
H1/5
30786
0.003
48.3
1.114
H1/10
30770
0.056
48.2
1.114
H1/15
30764
0.041
48.5
1.114
D1/5
5440
0.117
49.9
1.052
D1/10
5427
0.137
50.5
1.052
D1/15
5413
0.147
50.7
1.052



Let us summarize the obtained results with the following diagrams:

Conclusion

Momentums


A small positive momentum over the 1-hour timeframe is indicated at the signals of three lines.


The momentum of signals «Exit from Cloud», «Bounce from Kijun», «Bounce from Tenkan» and «Three lines signal» over the daily timeframe is around 0.15 – 0.2%.


The greatest momentums are indicated with the signals «Bounce from Kijun» (0.23%) and «Bounce from Tenkan» (0.19%) over the daily timeframe at closing position at the 15th candlestick after the entry.


The momentum of signals «Crossing of lines of Tenkan and Kijun», «Crossing of the price and Chinkou Span» over the daily timeframe is around -0.15 – -0.2%.


The lowest momentums are indicated with the signals «Crossing of lines of Tenkan and Kijun» over the daily timeframe at closing positions at the 15th candlestick (-0.19%) and at the 10th candlestick after the entry (-0.17%).


In general, momentums of signals of Ichimoku do not exceed the maximum significant value of 0.3% on Module.



SPP


The share of profitable positions for signals over the 1-hour timeframe varies between 46.5% and 50.2%; for the daily timeframe it lies between 48.6% and 51.1%.


50.5% of profitable positions of the signal «Bounce from Kijun» have brought the momentum of 0.23%.


48,7% of profitable positions of the signal «Crossing of lines of Tenkan and Kijun» have brought the momentum of -0.19%.



Volatility


Volatility rises by more than 5% after the following signals: "The breakdown of Senkou B", "The bounce from Kijun", and "Three-line signal" at both timeframes.


Volatility falls by more than 5% after the signals of «The crossing of Tenkan and Kijun» and «The crossing of the price and Chinkou Span» over the 1-hour timeframe. After these signals, it remains almost the same over the daily timeframe.


Volatility after the signals of «The crossing of Senkou A and Senkou B», «The exit from Cloud», «The bounce from Senkou A / Senkou B», and «The bounce from Тenkan» does not change.



The effectiveness of signals of Ichimoku in market forecasting has not been identified.

XLSX (0.25 MB)Application to the article 'Indicator Ichimoku_Let's check the effectiveness of its signals'.xlsx.xlsx

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