Ichimoku Arithmetic Theory - basic concepts to know
Any Trader who are using Ichimoku for trading or interested in Ichimoku, this is an article that cannot be missed. The article will discuss issues related to time frame, cycle, how to set parameters for Ichimoku.
As you know, Ichimoku is known for its 5 basic lines:
Tenkan Sen.
Kijun Sen.
Senkou Span A (part of Kumo cloud).
Senkou Span B (another part of Kumo cloud).
Chikou Span.
1. Ichimoku Numerology - The Three Basic Pillars
Over 95% of Traders, trading teachers, and analysts consider the aforementioned 5 lines as the basic factor of Ichimoku. But in reality, that's not correct. The basis of Ichimoku includes 3 main pillars listed below:
Ichimoku Numerology Theory.
Ichimoku Wave Theory.
Ichimoku Price Theory.
These are the 3 main pillars that make up the basis of Ichimoku, but the root of all these 3 pillars comes from the numerology theory of Ichimoku.
Goichi Hosada (inventor of Ichimoku) spent more than 4 years researching and developing Ichimoku based on numerical theory. He researched many theories from the East to the West, and finally settled on 3 numbers that he thought were most important to Ichimoku. You may also know about these 3 numbers: they are 9, 17 and 26. This is why the Kijun Sen line is set with a 26 cycle, number 26 is related to Goichi's own work, not related to 6 trading days in a week in the Japanese financial market (and many traders misunderstand this issue). This means that no matter what time frame you are using to trade, the parameters of Ichimoku need to be kept intact as the original.
2. Ichimoku Numerology - the principle of 10 numbers
You know that there are 3 most important numbers in Ichimoku, but the system of Ichimoku has a total of 10 numbers, including the following numbers (please read carefully, I will explain clearly in the section below):
9 -17 - 26 are the 3 most important numbers.
Other numbers include: 33 - 42 - 65 - 76 - 129 -172 - 200 - 257
Now you can try a calculation as follows:
Take 9 + 17, get 26.
Take 26 + 17 = 42 +1
Take 33 + 9 = 42.
Take 33 x 2 = 65 +1
Take 42 + 33 = 76 -1
Take 65 × 2 = 129 + 1.
Take 129 + 42 = 172-1.
So, all these numbers are closely related to each other.
3. Applying Ichimoku Mathematics in Practice
Ideally, Traders should use mathematical theories in combination with the remaining two pillars of Ichimoku, which are price theory and wave theory. However, due to the limitations of the article, I will only mention the most basic way to apply the theory to find reversal points. The easiest example to understand is that you will see the price behavior usually reacts very strongly to the numbers of Ichimoku. Of course, Ichimoku mathematics is not a holy grail to help you detect early reversal points, it only tells you that you should pay attention to the price areas with high reversal potential. In the market, predicting an event is even more important than forecasting it (because forecasts are often wrong, while predictions give you many scenarios to prepare).
An example with the AUDUSD daily chart, here you can observe:
AB = 41 (move 41 candles before reversal)
BC = 16 (16 candles before reversal)
CD = 26 candles.
DE = 18 candles (17+1)
EF = 26 candles.
This is just a small example so it may not be accurate if you observe many different charts, so consider this as a reference example. Some interesting information you can refer to when applying Ichimoku is that JPY pairs often react more strongly to Ichimoku than other pairs, perhaps because many Japanese traders use Ichimoku in trading?
In summary, although this is just an introduction to Ichimoku, I want everyone to understand that Ichimoku is not just a theory of 5 basic lines (Kijun Sen, Tenkan Sen, etc.), it is a solid theory built on mathematics, price theory, and wave theory. Ichimoku itself is already a standalone system and method, without the need to combine with any other methods. Goichi Hosada once said about this in the mid-80s: "Among 10,000 people who use Ichimoku, perhaps only 10 truly understand Ichimoku."
I hope the article has helped clarify issues when using Ichimoku, see you in the next article.