What is Ichimoku (and what it is not)
Ichimoku (often called Ichimoku Kinko Hyo) is a charting method that converts historical price information—specifically recent highs and lows—into multiple lines. Those lines are intended to help you describe market structure, such as whether price is above or below a shifting “cloud.”
A key point for a worked example: Ichimoku’s mechanics are formula-based. The outcome is not guaranteed because it depends on which historical candles you use, which period settings you choose, and how the market evolves afterward.
How a worked example works (definitions and assumptions)
Standard Ichimoku implementations often use these named components:
- Tenkan-sen (conversion line): midpoint of the highest high and lowest low over the last short period.
- Kijun-sen (base line): midpoint of the highest high and lowest low over the last medium period.
- Senkou Span A (leading span A): average of Tenkan and Kijun, shifted forward.
- Senkou Span B (leading span B): midpoint of highest high and lowest low over a long period, shifted forward.
- Chikou Span (lagging span): current closing price shifted backward.
To make this concrete, the worked calculation below uses simple, explicit assumptions. Assumptions are listed so you can verify each number:
- We are working with one chosen point in time, called “Day 0.”
- “High” and “low” are taken from assumed historical windows; no live market data is used.
- We use common parameter lengths: 9, 26, 52 for Tenkan/Kijun/Span B, and a displacement of 26 for the leading/lagging shifts.
- Midpoints are calculated as ((highest + lowest) / 2).
- All inputs are in the same price units.
Step 1: pick the assumed window values
Assume that in the relevant lookback windows ending at Day 0, the extremes are:
- Over the last 9 periods: highest high = 110, lowest low = 90.
- Over the last 26 periods: highest high = 120, lowest low = 80.
- Over the last 52 periods: highest high = 130, lowest low = 70. Also assume the closing price at Day 0 is 100.
Step 2: compute Tenkan-sen and Kijun-sen
- Tenkan-sen = (110 + 90) / 2 = 100.
- Kijun-sen = (120 + 80) / 2 = 100.
Step 3: compute Senkou Span A and Senkou Span B (before shifting)
- Senkou Span A (raw) = (Tenkan-sen + Kijun-sen) / 2 = (100 + 100) / 2 = 100.
- Senkou Span B = (130 + 70) / 2 = 100.
Step 4: apply the shifts (displacement)
With a displacement of 26:
- Senkou Span A is plotted 26 periods ahead of Day 0.
- Senkou Span B is plotted 26 periods ahead of Day 0.
- Chikou Span is plotted 26 periods behind Day 0.
Numerically, this means the cloud values derived from the Day 0 window—here both equal to 100—appear at the future index (Day + 26), while the lagging span appears at the past index (Day − 26).
Step 5: what the example lets you verify
From the above assumptions you can independently confirm:
- The conversion and base lines both equal 100 because the chosen midpoint inputs match.
- Both cloud spans also equal 100 in this simplified example because the derived raw calculations match.
This worked example is intentionally “clean.” Real data rarely produces identical midpoints, and small differences in highs/lows will change each line.
Evidence: how to validate the mechanics yourself
Because Ichimoku is built from explicit functions of highs/lows and shifts, a reliable validation process is:
- Choose a specific Day 0 candle.
- Identify the exact historical window used for each line (9/26/52 in this example).
- Compute each midpoint using the same midpoint formula.
- Apply the displacement consistently (forward for leading spans, backward for the lagging span).
If your platform uses different defaults (for example, different period lengths or displacement), recompute with your settings. The formula mechanics stay the same; only the chosen parameters change the numeric outputs.
Limitations and failure modes (what can go wrong)
At least one material limitation applies to any Ichimoku worked example:
- Different input windows and parameters change the result. A worked calculation depends on whether highs/lows are taken from the same candle period (for example, daily vs. hourly) and whether the same line settings are used.
Additional common failure modes include:
- **Mistaking visuals for signals.