Ichimoku: Using Confirmation Signals & Retracements

The Ichimoku Kinko Hyo is a powerful technical indicator that provides an overview of the market at a glance. In addition to its basic components, this indicator can be used to identify confirmation signals and critical retracement levels. In this article, we'll explore how to use these advanced aspects of Ichimoku to enhance your trading.

Ichimoku Kinko Hyo components

Before diving into confirmation signals and retracements, let's briefly recap the components of the Ichimoku Kinko Hyo:

1. Tenkan-sen (Conversion Line) Calculated by taking the average of the highest and lowest values over the last 9 periods.
2. Kijun-sen (Base Line) Calculated by taking the average of the highest and lowest values over the last 26 periods.
3. Senkou Span A (Relaxation Line A) Average Tenkan-sen and Kijun-sen, projected 26 periods into the future.
4. Senkou Span B (Relaxation Line B) Average high and low over the last 52 periods, projected 26 periods into the future.
5. Chikou Span (Delay Line) Current closing price, projected 26 periods in the past.

Identification of Confirmation Signals

Confirmation signals are essential to validate your trading decisions. Ichimoku Kinko Hyo offers several methods for confirming trading signals:

1. Tenkan-sen/Kijun-sen crossings :

   • Bullish cross When the Tenkan-sen crosses over the Kijun-sen, it signals a potential purchase.
   • Bearish cross When the Tenkan-sen crosses below the Kijun-sen, it signals a potential sale.

2. Chikou Span position :

   • Bullish confirmation The Chikou Span must be above the current price to confirm a buy signal.
   • Bearish confirmation The Chikou Span must be below the current price to confirm a sell signal.

3. Position in relation to Kumo :

   • When the price is above the Kumo, the trend is considered bullish.
   • When the price is below the Kumo, the trend is considered bearish.
   • A price inside the Kumo indicates a phase of consolidation or indecision.

Using Tracking

Retracements are levels where the price tends to turn around or find support/resistance. Ichimoku Kinko Hyo, in combination with Fibonacci retracements, can provide powerful retracement levels:

1. Fibonacci retracement levels :

   • Key retracement levels (38.2%, 50%, 61.8%) can be used to identify potential turning points.

2. Combination with Ichimoku :

   • Use Fibonacci levels in conjunction with Ichimoku lines to confirm support and resistance levels.
   • For example, a 61.8% retracement level coinciding with the Kijun-sen or Kumo edges may be a particularly strong support or resistance level.

Practical examples

Example 1: Bullish confirmation with retracement

1. Analysis The price is above the Kumo, the Tenkan-sen crosses above the Kijun-sen, and the Chikou Span is above the price.
2. Action Identify a Fibonacci retracement level (e.g. 50%) that coincides with the Kijun-sen.
3. Decision Take a long position with a stop-loss below the Kumo and a target based on the next resistance level.

Example 2: Confirmation Baissière with Retracement

1. Analysis Price is below Kumo, Tenkan-sen crosses below Kijun-sen, and Chikou Span is below price.
2. Action Identify a Fibonacci retracement level (e.g. 61.8%) that coincides with the upper edge of the Kumo.
3. Decision Take a short position with a stop-loss above the Kumo and a target based on the next support level.

Conclusion

Using confirmation signals and retracements with the Kinko Hyo Ichimoku can considerably improve your trading accuracy. By combining Ichimoku crosses, positions relative to Kumo, and Fibonacci levels, you can identify more robust entry and exit points. As always, it's important to practice these techniques on a demo trading account before applying them in real trading. Don't forget to share your experiences and analyses on social networks with the hashtag #xenesy and by tagging @xenesy_project. Happy trading!