Can someone PLEASE explain Chikou confirmation with Ichimoku trading?

Beginner Questions
1

I have posted this on the Kumotrade forum, but since that forum is very inactive I am posting this question here as well.

Could someone please explain to me how exactly one uses the Chikou Span to confirm Tenkan-sen or Kijin-sen crosses or Kumo breakouts?
It seems that everywhere I read it says the same thing: If the Chikous Span is above or below the price curve this can be used to confirm a cross or breakout.

But when trading live the Chikou Span is 26 days behind us! So we don’t have access to it. And just putting a trend line at the current level of price to compare to the Chikou Span is useless too since the Chikou is always at the current price level, (its the current close displaced 26 days back).

So if the Chikou Span is the close of the most recent price, set 26 days back, what does “chikou span is higher or lower than the price curve” mean? Isn’t the Chikou Span always AT the current price curve? Am I missunderstanding the term “Price curve”? Dosn’t it mean the candles representing the current time period?

I have scoured the web looking for answers but the best explanation I can think of is this:

“If the Chikou Span is higher or lower than the price curve” means if the current price is higher than the candles 26 days ago, that can be viewed as a bullish confirmation of any Tenkan-sen/Kijin-sen, Kijin-Sen crosses or Kumo breakouts and if the current price is lower than the candles 26 days ago, its a bearish confirmation.

So as an example, looking at the EUR/USD graph, for Dec 7 we see the candle breaking down into the Kumo, indicating that in the next day or so we may get a fresh down trend, (price may close beneath Kumo). We also see the Tenkan-sen is converging with Kijin-sen and will probably cross under in the next day, (with the next candle) indicating a downtrend as well.

To confirm with the Chikou span we look back to the corresponding part of the Chikou Span, which occurs on Nov 10, on the graph. We see that the Chikou Span is 200 pips or so beneath the candle, so this is taken as a confirmation of a bearish signal and gives credence to the idea that a fresh, long term downtrend may be in store for the EUR/USD. For those who only trade if kumo break out, Tenkan-sen/Kijin-sen cross AND Chikou Span all confirm the same thing, a shorting of the EUR/USD would be valid, (assuming that the price closes beneath the Kumo and Tenkan-sen/Kijin-sen cross occurs).

Is that correct or am I completely wrong?

I have tried back testing without the Chikou, and my performance has suffered immensly (with back testing) as I often get faked out by false break outs. I know that if I could just learn what people mean by use the Chikou Span to confirm, I could really improve my trading performance.

And if anyone knows of any visual examples such as a graph or videa that clearly shows how one uses the Chikou Span that is 26 days back to trade in real time, (where there is no Chikou Span) I would greatly appreciate it.

2

Not sure what you mean by we don’t have access to it…it is on the chart.
It is simply price set back 26 periods. So if price now is above the price 26 periods ago it is telling you that you are in an uptrend.

Have you read the ichimoku wiki?
Main Page - IchiWiki - The Definitive Reference to the Ichimoku Kinko Hyo Charting System

3

Thanks SanMiguel, you not only confirmed that what I was thinking was correct, but you said it in such a straightforward way that it seems crazy I was confused at all.

If the price 26 days ago was beneath that of today, then the trend with whichever time frame your dealing with is down, which is why a downward break under the Kumo and T/K cross indicates a strong downtrend that could last for a long time and an upward break should be avoided as a possible fake out, (a true upward trend reversal will soon see Chikou go above price confirming this is the real deal).

I just did quick checks on some backtesting that I had trouble with this afternoon.

USD/JPY and EUR/CHF, I found that without Chikou Span confirmation using just T/K cross and Kumo breakout resulted in massive amounts of fakouts and stop losses. EUR/CHF was especially hellish since that pair has largly been ranging all year.

I just checked and indeed had one waited for the Chikou Span to confirm, those fakeouts would have been avoided.

Thanks SanMiguel, thanks to you hope is once again alive in my heart and I am excited to spend the day backtesting to make sure my that this system works as well as it does.

I’m also thrilled that today or tomorrow we may have the Yen pairs and EUR/USD confirmed into a down trend that will let me open my first trades on meetpips.com and finally try my hand at live demo trading!

Wow, Forex is exciting!:smiley:

4

It is not just the price 26 periods but the price curve that is important. Basically, if the chikou is clear of the candles around the range of 26 periods ago then it is 1 factor helping to confirm a possible break/trend in that direction. The ichimoku wiki has some examples.
Be careful with the EUR/CHF pair, it doesn’t move much (ADR is very low).

5

So by clear do you mean substantially above or below the price curve? This would make sense as a strong trend would be have better probability of a long, profitable trend.

You weren’t kidding with EUR/CHF, their ATR has been shrinking all year and back testing that pair resulted in nothing but losses except for a year and a half ago when they had one steep and sustained decline.

By the way, is there a rule of thumb for what the minimum ATR should be for trading with the Ichimoku system? Any other pairs that suck right now?

Thanks again for the advice, good to have hope alive again.:smiley:

6

Did you get the section of kumo trader that was not a forum. The learning section that describes each part of ichi?

Main Page - IchiWiki - The Definitive Reference to the Ichimoku Kinko Hyo Charting System

Another thing to consider is that traditionally all the ichi signals are not considered confirmed until the close of a candle.

For instance if you see a kinjun cross on D1 it’s not confirmed until the candle closes, for the strongest signal.

To answer your original question, the chikou span is price projected backwards. So, above/below the price curve is the span above/below price 26 periods back.

I would also consider the direction of the span. I often wait, even if everything lines up, if the span is pointing against the trend direction the signals point to.

I mainly use chickou to draw support and resistance. It makes it easy to see what has been broken or bounced off of.

7

SanMiguel and ThePhoenix, thank you for the link.

What settings do you use, 9, 26 and 52 ?

Regards

8

I use the default, because that’s what it was originally designed and tested on.

9

The way I understand the Chikou Span is as follows…
As always if the Chikou span is above the price, it is bullish. Below is bearish. I tend to look for how close the chikou is to a previous tenkan/kijun line. I then look at Chikou span in relation to the Senkou.

Take for example a chikou span which is above the price. If however it is below the kumo (senkou a/b) I like to think of the price being oversold in an uptrend and. Like buying on the dip.

The chikou span tends to follow previous kumo lines and trend lines. You may find support or resistances at these historic levels.

Think of it a bit like history repeating itself.

The flat areas of the tenkan/kijun lines provide a type of magnetic effect on the chikou. Hence the support and resistance ideology.