Ichimoku is a complete trading system. Understanding ichimoku will reduce a lot of work a trader generally does. One glance of charts with ichimoku will tell you what the instrument is doing and going to do in short to long term. So it is advisable for all budding traders to understand this one powerful tool and strengthen your trading skills.
To understand Ichimoku, we will need to understand its components in-depth. In this post we will learn about Kijun-sen
Formula to calculate Kijun-sen
Kijun-sen=(Last 26 period high + Last 26 period low)/2. Look at the chart below for more clarity.
What does Kijun-sen tell us:
- A trending Kijun-sen means that a 26 period low or high is broken
- A flat Kijun-sen denotes that market is in a consolidation phase
Role of Kijun-sen in Ichimoku trading system:
- Kijun-sen is where equilibrium is
- Kijun-sen acts as strong level of resistance and support. During a strong trend, look for a pull-back trade from Kijun-sen
- Kijun-sen is used for deriving the value of Span -A which is one of the two lines that form Kumo
- A flat Kijun will attract price. Kijun is flat means there are no new high or low being made from the last 26 periods and the instrument is in range. 50% Fibo levels and Flat kijun will be at same level
Kijun-sen acts as strong resistance for the price when it is below kumo. Look at the chart below for visual confirmation.
Kijunn-sen acts as strong support for the price when it is above kumo. Look at the chart below for visual confirmation.
Strategies Possible with Kijun-sen:
- Tenkan-sen and Kijun-sen crossover
This is the most used ichimoku strategy. Location of crossover is very important when we take trade according to this strategy. Using a momentum indicator along with this strategy can reduce the number of whipsaws.
2. Kijun cross and Kijun bounce
Kijun cross is a continuation strategy and Kijun bounce is a reversal strategy
Kijun-sen is the strongest Stop Loss that we can think of amongst all the components of Ichimoku. Entry levels near Kijun are the best as they produce very lucrative Risk:Reward Ratio.