One of the ways to trade with the Ichimoku Kinko Hyo is the Tenkan-Kijun cross setup. This setup involves the use of the Tenkan line and the Kijun line, plotted 9 and 26 periods ahead. Both lines collectively form the Senkou Span A, one of the borders of the cloud component of the Ichimoku known as the Kumo. The Senkou Span A is formed by taking the Tenkan and Kijun values together, dividing them in half – then plotting them 26 periods ahead.
The Tenkan Sen
The Tenkan sen or Tenkan line comes with a red colour by default on the MT4 chart.
As a whole, the Tenkan’s angle of crossing the kijun has to be sharp, as that is what will produce the stronger signals. Why? The tenkan line is designed to register momentum – thus a sharp cross indicates strong momentm.
A flatter appearance is an indication of a market/asset without momentum in any direction and so will produce less tradable signals.
The Kijun Sen
The Kijun sen is usually seen on the MT4 chart as a blue line. It represents the overall trend of the asset. A Kijun line with a sharp angle of bend indicates that the asset is trending, while a flat Kijun is an indication of a market in consolidation.
Trading the TK Cross
Trading the Tenkan-Kijun cross setup (the TK cross) requires the trader to fully understand what the sentiment of the market is at the moment of trading. This will be used to determine if a TK cross is worth trading.
Tenkan-Kijun Cross Setup
The chart above shows four Tenkan Kijun cross setups. A and C represent the bearish TK cross, which occurs when the Tenkan sen crosses the Kijun sen downwards, while B and D represent the bullish TK cross which occurs when the Tenkan sen crosses the Kijun sen upwards.
Now does it mean that anytime there is a TK cross, the trader should enter the trade? A look at the chart will show that this is not the case, especially for the Tenkan-Kijun cross setup at B and C. This is where the market sentiment comes in.
The market sentiment is gauged by looking at the price action of the asset in relation to the cloud. If the price is above the cloud, then the market sentiment is bullish. When the price is below the cloud (the overcast), the sentiment in the market is bearish. A neutral sentiment occurs when the price is contained within the cloudy, and really, a trader should not make a trading decision when the market sentiment is “cloudy” (forgive the pun).
Following the market sentiment characterization just provided, we see that a bearish TK cross trade would be more successful when the market sentiment is bearish (price below the cloud), and a bullish TK cross trade would be more successful if the price is above the cloud.
If the TK crosses occur within the cloud or in a juxtaposed manner, the signals will not be as strong or tradable. The inventor of the Ichimoku Kinko Hyo (Hosada) described the signals as strong, medium and weak signals where:
– A strong signal occurs when the direction of the cross occurs when there has been a break of the Kumo in that direction
– A medium signal is described as a TK cross occurring in the cloud
– A weak signal occurs when the TK cross setup occurs if the break of the Kumo in the direction of the cross is yet to occur.
The best option is to trade with a strong signal, which is seen in these two examples below:
This is a bearish TK cross which occurred as price bounced off the lower line of the cloud. This is a perfect setup for a short trade.
This is a bullish TK cross which occurred twice. The initial Tenkan-Kijun cross setup occurred at A, while the TK cross setup at point B is an opportunity for those who missed the initial move to re-enter the trade.