CLASSIC TECHNIQUES
The Mountain Man Is Back, This Time In Computerized Trading Rooms
Ichimoku Charts
by Ken Muranaka
A Japanese charting technique developed early in the 20th century is enjoying renewed popularity.
Invented before World War II by a Tokyo newspaper writer who called himself "Ichimoku Sanjin" (a pen name meaning "a glance of a mountain man"), ichimoku charts are becoming a popular tool for Japanese traders once more, not only in equities but also in currencies, bonds, indices, commodities, and options. Literally, ichimoku means "one look"; a chart of this style is referred to as ichimoku kinkou-hyou -- the table of equilibrium prices at a glance.
FIGURE 1: ICHIMOKU CHART. June gold 2000 jockeys within the confines of lines generated by its own movement. Ichimoku charts are meant to portray the tradable's position within its expected trading range. The most recent prices are in the cloud, indicating a lack of direction.
Ichimoku's guidebook on the charts finally appeared in 1968, long after the newspaper writer, whose real name was Goichi Hosoda, developed the technique. All the computations involved no more than taking midpoints of historical highs and lows in various ways. Nevertheless, the completed chart presents a panoramic view of price movement. For years, Hosoda hired students to do numerous calculations (or simulations) to come up with the optimum formulas, long before personal computers or even pocket calculators were the norm. He died in 1983, but the spirit of his work is in computerized trading rooms in the form of ichimoku charts. Although he also developed some wave theories, I'll only cover the chart style here.
CONSTRUCTING AN ICHIMOKU CHART
An ichimoku chart consists of:
1 The standard line,
2 The turning line,
3 The delayed line,
4 The first preceding span, and
5 The second preceding span.
Ken Muranaka is a private trader. He may be reached via the Internet at http://web.kyoto-inet.or.jp/people/kenneth/hp.htm.
Excerpted from an article originally published in the October 2000 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2000, Technical Analysis, Inc.
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