Certified Financial Technician (Cfte) I & Ii Syllabus & Reading Material

Certified
Financial Technician (CFTe) I & II Syllabus & Reading Material

(last updated: 13 September 2017)

Appendix E

Primer on ICHIMOKU
(IFTA Required CFTe II Reading Material)

Yukitoshi Higashino, MFTA
NTAA Director
Nippon Technical Anlaysts Association (NTAA)

Preface

“Ichimoku Kinko Hyo”, commonly referred to as just “Ichimoku”, is a technical analysis method developed by
Goichi Hosoda (1898–1982), a Japanese financial market journalist, through his many years of research in
financial markets. Even 30 years after Hosoda’s death, Ichimoku is still widely used by traders and investors as
an effective tool for analyzing markets and trade in Japan. Although Ichimoku is becoming more popular
among an increasing number of traders and investors around the world, it does not seem to be used as widely
and as effectively as it is in Japan. The causes of this are multifold. First, Ichimoku is an integrated set of
multifaceted market analysis principles and techniques, including price projection, time projection, and wave
analysis, among others. The wide variety of techniques and concepts included in the Ichimoku theory make it
highly challenging to fully master. And obviously, a language barrier exists. Japanese is a tricky language for
many Westerners (on a side note, in my humble opinion, with its simple pronunciation system it can be a very
friendly language, making it one of the best choices when deciding to learn a new language). Japanese
vocabulary and grammatical structure are very different from English, making translation from Japanese into
English quite difficult. It is an especially challenging task to find the right English translations of many Japanese
words used in the original Ichimoku theory. Unless one has a good understanding of the theory, it is practically
impossible to adequately translate Ichimoku educational materials into English.

Using NTAA’s educational material as the base, I have prepared this primer on Ichimoku, with the aim of
effectively introducing Ichimoku to English-speaking learners. To make this primer “study-friendly”, I have
made an attempt to use plain English words instead of being “loyal” to the Japanese words in the original
theory. Ichimoku theory puritans may say that the original theory has been outrageously simplified in this work
and that a lot of important things are missing. They may even say that such oversimplified Ichimoku is not real
Ichimoku. There is an element of truth in such a criticism. To be very clear, this is just a primer on Ichimoku and
not comprehensive educational material describing all the tenets of the theory. Learners should treat this work
as such. Nevertheless, I believe this document will push the interested in the correct direction and hopefully
inspire people to seek out all its more complex aspects.

I hope this primer helps my IFTA colleagues learn the very basics of this unique technical analytical method
developed in Japan.

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Certified Financial Technician (CFTe) I & II Syllabus & Reading Material

Introduction

To know the next market direction, one only needs to know which side—buyers or sellers—is winning or losing.
The market moves in the direction of the break in equilibrium between the buyers and sellers. The chart
developed by Hosoda allows one to instantly grasp the equilibrium state of the market. This is why it was
named “Ichimoku Kinko Hyo”, which literally means “One Glance Equilibrium Chart” in Japanese.

The three basic principles of the Ichimoku theory are “time”, “wave structure”, and “price level”.

In Ichimoku, analysis is focused on the underlying “powers” in the market. Overpriced stocks fall, and
underpriced stocks rise. No market continues rising or falling infinitely. Stock prices often rise when the
economy is in bad shape and fall when the economy is in good shape. This is a common economic phenomenon
that reflects movements of money in the system. Ichimoku is a method for rationally gauging the state of the
financial markets that fluctuate, reflecting the underlying powers.

The market can only move or stay flat. When it moves, it can only rise or fall. It is as simple as this. But many
traders/ investors fail to make money, frequently because they make the process of market analysis overly
complicated. Another reason is that their trading/investment process lacks rigor. We should not take action
based on subjective market analysis or a wishful projection. We should not act on unverified rumors, nor should
we be influenced by the market atmosphere. When we take an action based on a projection, it has to be
measurable. We often hear people saying that we should “buy on weakness” or “sell on strength”. In most
cases, however, their answers are vague and do not state at exactly what price. Ichimoku provides an objective
base for taking trading/investment action. It tells us at what price to buy or sell and when. Projections made
with Ichimoku are always measurable.

One of the important traits of Ichimoku is its “time” study. Most market players focus on price moves and tend
to make light of the time factor. In Ichimoku, while price moves are important, the time factor is more
important; without a solid “time” study, one cannot have a true understanding of the markets.

96


97


2. Composition of the Ichimoku Chart

Ichimoku consists of a candle chart and five lines, as shown in Fig. 1.
(1) Conversion line – (highest high + lowest low)/2 in the last nine periods (including the current period)
(2) Base line – (highest high + lowest low)/2 in the last 26 periods (including the current period)
* Base line and Conversion line are plotted in the current period.
(3) Leading Span 1 – (Conversion line + Base line)/2
(4) Leading span 2 – (highest high + lowest low)/2 in the last 52 periods (including the current period)
*Leading spans 1 and 2 are plotted 26 periods ahead (including the current period).
(5) Lagging-span – Current price plotted 26 periods back (including the current period)
* It becomes a line that runs parallel to the current price line.
(6) Cloud – The space between Leading span 1 and 2

(Fig. 1) Composition of ICHIMOKU chart
（ P）
1550 S&P500 (Daily.2012/10/1-2013/2/1) 26 26
9
Lagging span
1500
Leading span1
1450
Cloud
1400
Base line
Leading span2
1350 Conversion line
52
1300
10/1 10/15 10/31 11/14 11/29 12/13 12/28 1/14 1/29 2/12 2/27
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3. The Five Basic Lines and Their Uses/Functions

(1) Base line and Conversion line
The Conversion line is the midpoint of the high-low range in the last nine periods (including the current period),
and the Base line is that of the last 26 periods. They may look similar to moving averages but are different. They
may be called "moving midpoints". In Ichimoku, midpoints are thought to represent better equilibrium points in
the market than moving averages. In moving averages, closing prices are treated as king. Regardless of the
volatility or the price swing in a given period, the closing price is the only thing that is counted. That is, even if
the price swings vary widely in a period, it is not reflected. Ichimoku dismisses this and instead uses the
midpoint indicators, which reflect the whole price range in a given period.

When the Conversion line crosses above the Base line, a bullish signal is generated, indicating that one should
start looking to buy the market. When the Conversion line crosses below the Base line, it is a bearish crossover,
signaling that one should start looking to sell the market. This is the basic rule.

When implementing this, one should bear in mind the following points:

(a) The direction of the Base line should be taken as the direction of the market. Even if the
Conversion line has crossed above the Base line, it is not really bullish if the Base line fails to
turn up. More often than not, a rally not accompanied by an upturn in the Base line ends up
short-lived. By the same token, even if the Conversion line has crossed below the Base line, it is
not really bearish if the Base line keeps trending upward. More often than not, a downswing
not accompanied by a downturn in the Base line also ends up short-lived.
(b) The Base line often serves as support when the price corrects downward in a bull market. It
serves as resistance when the price corrects upward in a bear market.
(c) In a strongly bullish or bearish market, the Conversion line often serves as support or
resistance, and that is often enough to terminate any corrective moves.

(2) “Cloud” (Space between Leading span 1 and Leading span 2)
The cloud-like area formed by the Leading span 1 and the Leading span 2 is called the “Cloud” (“kumo” in
Japanese).

Following are the principal points of the Cloud:

(a) The Cloud is used to determine the market direction. When the price is above the Cloud, it is judged
that the market is in a longer term bull market. When the price is below the Cloud, it is judged that the
market is in a longer term bear market.
(b) The Cloud serves as longer term support in a bull market and longer term resistance in a bear market. A
break through the Cloud signals a change in the longer term market trend. A break above the Cloud
signals that the longer term trend has turned from bearish to bullish. A break below the Cloud signals
that the longer term trend has turned from bullish to bearish.
(c) The degree of thickness of the Cloud indicates the degree of strength of the support or resistance it
provides. When the Cloud is thin, it is weak as a support/resistance zone. The price can break through it
with relative ease. When the Cloud is thick, it serves as a strong support/resistance zone. In a bull
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market, down corrections often stop in the Cloud. In a bear market, upward corrections often stop in
the Cloud.
(d) Changes in the shape of the Cloud provide useful insights into what is happening in the market. As the
result of the two lines constituting the Cloud (the Leading span 1 and the Leading span 2) interacting
with each other in various ways (e.g., approaching each other, diverging, crossing, moving in parallel to
each other), the shape of the Cloud changes constantly. For instance, it is observed in many markets
that when the Cloud “twists”, as the two lines constituting the Cloud (the Leading span 1 and the
Leading span 2) cross each other, a trend change takes place at relatively high frequencies. So is the
case when the Base line and the Leading span 2 approach each other. There are many other interesting
observations, but discussing them at length here would not fit to the purpose of this primer. Readers
of this primer are encouraged to make your own discoveries by observing the changing shapes of the
Ichimoku Cloud in the markets you trade in or analyze.

(3) Lagging span
The lagging span is drawn by plotting the current closing price 26 periods back.

Much information can be obtained from the relationships between the Lagging span and the other four lines.
While there are many ways to use the Lagging line, the most common ways to judge the market direction using
the Lagging span are as follows:

(a) Lagging span vs. Current price (of 26 periods ago)
If the Lagging span is above the current price (of 26 periods ago), it is bullish. If the Lagging span is below the
current price (of 26 periods ago), it is bearish.

(b) Lagging span vs. Cloud
If the Lagging span is above the Cloud, the longer term trend is upward. If the Lagging span is below the Cloud,
the longer term trend is downward.

(4) Three Conditions to Make a Safe Bull (Bear) Call
According to the Ichimoku theory, when the following three conditions are in place, one can safely judge that
the market is in a bullish (bearish) state.

(a) The Conversion line is above (below) the Base line, which is trending up (down) or at least flat.

(b) The Lagging span is above (below) the current price (of 26 periods ago).

(c) The price is above (below) the Cloud.

(5) Typical Bottoming-out (or Top-forming) Pattern
Fig. 2 illustrates a typical bottoming-out pattern, with the price starting to rise sharply after hitting the second
bottom (C) without falling below the previous low (A). (The horizontal line drawn from the first bottom is called
“Border line” in the Ichimoku terminology.)
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In terms of Ichimoku, the following are the typical bottoming-out patterns. (Markets do not always follow this,
so readers should treat it as just a reference example.)

(Fig. 2) Typical Bottom Forming Pattern

B

C

A Border line

● The second bottom (C) is formed within 26 days of the first bottom (A).
● Within several days of the second bottom (C) forming, the Conversion line crosses above the
Base line, the Lagging span crosses above the current price (of 26 days ago), and the price crosses
above the Cloud.
● After the price crosses above the Cloud, the price starts rising at an accelerated rate. The price
may correct downward, but it gets supported by the Cloud and resumes the rally within nine days.
● It is ideal if a breakaway gap develops after the price hits the second bottom (C) and even
better if consecutive gaps appear.
● Ideally, the price does not fall below the Base line.

The reverse applies in the case of a top-forming pattern. These are some typical examples.

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Fig. 3 is the daily chart of Trendmicro, a Japanese Internet security company, from July to early November 2011.

(Fig. 3) Example - Typical bottom
forming
4704 TRENDMICRO (daily.2011/7/1-2011/11/8)
（ Yen）

2900
Lagging span

Leading span1
2700 ④
③
①
2500 B
⑤
Cloud
2300

Leading span2
C ②
2100 Base line
A
Conversion line
27
1900
7/1 7/15 8/1 8/15 8/29 9/12 9/28 10/13 10/27 11/11 11/28

In September, a secondary low (C) was formed without the price falling below the previous low (A).

In early October, the Conversion line crossed above the Base line, and the price crossed above the Cloud (➀).

Then, the Base line started trending upward (➁).

Subsequently, the Lagging span, which occured in late August, crossed above the current price line (➂). Now,
the three conditions have occurred under which one can safely judge that the market is in an uptrend.

In mid-October, the Lagging span, which occured in early September, crossed above the Cloud, further
confirming that the market was in an uptrend (➃).

The subsequent rally was strong, and the price was supported by the Conversion line (➄).

Fig. 4 is the daily chart of Japan Tobacco, a Japanese tobacco company, from May to early November 2011.

102


(Fig. 4) Example - Base line providing support in uptrending market

2914 Japan Tabacco Indusry (daily.2011/5/2-2011/11/8)

（ Yen）

2100
Lagging span Conversion line

2000
① The price crossed above the Cloud

1900
D
1800 Cloud

1700
B
Base line
1600
③ The Basic line provides support

1500 ④ The C loud provides support
C ③ The Basic line provides support
1400 ③ The Base line started rising sharply
A
② Consecutive gap
1300
5/2 5/19 6/2 6/16 6/30 7/14 7/29 8/12 8/26 9/9 9/27 10/12 10/26 11/10 11/25 12/9

In late July, supported by the Base line, the secondary low (C) was formed without the price falling below the
previous low (A).

The price crossed above the Cloud, gapping above the upper boundary of the Cloud (➀). This was seen as a
breakaway gap—a bullish signal.

The price gapped up again, forming successive gaps (➁). This was strongly bullish.

The Base line started rising sharply (➂).

During the subsequent period, except for the period from late August to early September, the Base line served
fairly well as support (on a closing basis).

103


From late August to early September, although the price fell below the Base line, it rebounded immediately as it
approached the Cloud. There was no need to be concerned about a possible trend reversal at this stage, since
the Cloud started to become thick in early September, indicating that it would provide strong support (➃).

Fig. 5 is the daily chart of Toho Holdings, a Japanese wholesaler of medicine and medical tools and equipment,
from June to early November 2011.

(Fig. 5) Example - Conversion line providing support in strongly bullish

8129 TOHO Holdings (daily.2011/6/1-2011/11/8)

（ Yen）

1150
Conversion line
Lagging-span runs parallel to the current price line
1100

1050
Lagging span Base line
1000
The price takes out the high B
950

900 Cloud
B
850

800
The Base line rising
750
C The Conversion line provides support
700
A The Cloud provides support

650

6/1 6/15 6/29 7/13 7/28 8/11 8/25 9/8 9/26 10/11 10/25 11/9 11/24 12/8

The price started rising sharply after forming a higher low at C (higher than the low at A) and breaking above
the Cloud. During the rally, the price was supported by the Conversion line.

Prior to this, the market hit a temporary high at B. This was because the Lagging span was hitting the Cloud.

104


105


4. Waves Structure Principles

Hosoda, in his book on Ichimoku, explained his wave theory in detail, spending many pages on this subject
alone. While it may be interesting to advanced Ichimoku students, I do not think that discussing it at length is
within the scope of this primer, so, I will just briefly explain his wave theory without going into great detail.

Hosoda classified the wave patterns that appear in financial markets into a number of groups according to their
wave structure, and he gave them unique names. They are designed to help understand price levels, time levels,
and the direction of the market.

I wave: A single rectilinear or straightish (normally sharp) thrust up or down without notable corrective moves.

V wave: A wave consisting of two successive I waves, a sharp thrust up followed by a sharp thrust down, or a
sharp thrust down followed by a sharp thrust up.

N wave (Fig. 7): An up-down-up or down-up-down wave. This is the wave pattern most commonly seen in the
market.

An uptrend is made up of a series of N waves forming higher highs and higher lows. A downtrend is made up of
a series of N waves forming lower lows and lower highs.

When the price falls below the previous low, the uptrend terminates. In a downtrend, lower lows and lower
highs are formed.

(Fig. 6) N wave

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(Fig. 7) Consecutive N waves

7

5 2
3 4

1 6
6 1

4 3
2 5

7

An uptrend terminates when the price falls below the previous low. It is confirmed that the market has hit a top
when a lower high is formed. (Fig. 8)

(Fig. 8) Top forming

pattern1 pattern2
C A
C
A
B
B

A downtrend terminates when the previous high is broken. It is confirmed that the market has hit a bottom
when a higher low is formed. (Fig. 9)
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(Fig. 9) Bottom forming

pattern1 pattern2

B

B

A

C
C A

Y wave: A wave pattern characterized by widening price movements (with the price forming higher highs and
lower lows), similar to the expanding triangle pattern. Candlestick-wise, the engulfing pattern is formed. This is
a reversal pattern.

P wave: A wave pattern characterized by narrowing price movements (with the price forming lower highs and
higher lows), similar to the normal triangle pattern. Candlestick-wise, the harami pattern develops.

S wave: A wave pattern that appears in the middle of a large (up or down) trend. In an uptrend, a higher low is
formed near the second last high. In a downtrend, a lower high is formed near the second last low.
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(Fig.10) Waves
Up Down

D A
B C

N wave
B
C
A D

E D
C B
A
Y wave

A
B C E
D

F A
B C
D E

P wave
E
C D
B
A F

F A
D
B C
E
S wave
E
B
C D
A F

A
D C

B
Bottom / Top forming B

D
(A→C) A C (A→C)

Example:

Fig. 11 is a daily chart of the Nikkei Stock Average from June 2010 to March 2011.

109


(Fig.11) Daily chart of NIKKEI Stock Average
（ Yen） 2/21
1/13 10857
10589 J
11000
6/21 H
10238
10500 B
7/14 10/6
9807 9691
10000 D F I
10237
1/31
9500
A
9000 9439
C G
6/9
9191 9154
E
8500 7/1 11/1
8824
8/31
(2010/6/1-2011/3/11)
8000
6/1 6/15 6/29 7/13 7/28 8/11 8/25 9/8 9/24 10/8 10/25 11/9 11/24 12/8 12/22 1/11 1/25 2/8 2/23 3/9 3/24

The wave from A to B is an "I wave".
The wave from B to C is also an “I wave”.
The wave from A to C is a “V wave”.
The wave from B to E is an “N wave”.
The wave from E to J is an “N wave” structured upward. The uptrend would terminate if the price
fell below the low I.

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5. Price Projection

In Ichimoku, there are six principal projection methods, as shown below in Fig. 12. The first four are the principle
ones. .

(Fig.12) Price Projection
N projection

N A

B C
= =

=
= C B

A N

E projection
E A

C
=

B =

B
=

=
C

A E
V projection

V A

B = C

= =

B

C =

A V

NT projection
A
NT

B =C
= 111

C =
= B
NT
A

● N projection – Up: N = C + (B – A) Down: N = C – (A – B)
* These two equations are effectively the same, but I show both as I believe this makes it intuitively
easier to understand for readers. The same applies to the following:

Up: Add the distance of the last upleg to the last low
Down: Subtract the distance of the last downleg from the last high

● E projection – Up: E = B + (B – A) Down: E = B – (A – B)
Up: Add the distance of the last upleg to the last high
Down: Subtract the distance of the last downleg from the last low

● V projection – Up: V = B + (B – C) Down: V = B – (C – B)
Up: Add the distance of the last downleg to the last high
Down: Subtract the distance of the last upleg from the last low

● NT projection – Up: NT = C + (C – A) Down: NT = C – (A – C)
Up: Add the distance between the last two lows to the last low.
Down: Subtract the distance between the last two highs from the last high

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(Fig.13) Price Projection
Y wave P wave

Y A

B = = C

= P

A =
B
C

S wave
C B
(A=S)
A S
S A
(A=S) C
B
3E projection
V A C
3E projection
= =
B
= =
B= =
= =
A C 3E projection
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● Y projection (to be used in Y waves) – Y = B + (A – C)

Add the distance between the last two lows to the last high

● P projection (to be used in P waves) – P = B + (A – C)
Add the distance between the last two highs to the last low

● S projection (to be used in S waves) – S = A
Up: The level of the second last high itself
Down: The level of the second last low itself

To project higherdegree targets, using the four principle projection methods (N, V, E and NT projection), whole
number multiples of the distances used above (i.e., distances between previous highs and lows) are used.
When the market is about to make a big move up, those distances typically are multiplied by four to project
targets (and added to or subtracted from the pivot point).

According to the original Ichimoku theory, to calculate the target prices for indices, closing prices should be
used; to calculate the target prices for individual stocks, intraday highs and lows should be used.

Readers are reminded, however, that in the Ichimoku theory, the time factor is more important than the price
factor. One should avoid being excessively obsessed with the price targets.

Let me show a couple of examples.

(Fig. 14) Example of Price Projection - Toyota Fig.
14 is
(daily.2011/11/2-2012/3/7)
the
（ Yen） daily
char
t of
3600 (E projection) Toy
(V projection) ota,
3400 3410=2690+360+360
Japa
3344=2690+218+218+218 (N projection)
n’s
3200 360 218
3192=2472+360+360 larg
3126=2690+218+218
3050=2690+360 est
3000 218 car
360
360 2908=2690+218 man
2,690
2800 218 2832=2472+360 360 ufac
B ture
2600 360 218 r,
fro
2400 C m
2472
A 114
2200 11.12/19
2330
11.11/24
2000

11/2 11/17 12/2 12/16 1/4 1/19 2/2 2/16 3/1

October 2011 into 2012. It hit the first bottom at 2,330 (A), followed by an intermediate top at 2,690 (B). The
secondary bottom was formed at 2,472 (C).

Although one cannot confirm that the secondary bottom was formed at C before the price takes out the high B,
one can start calculating the targets assuming that the low C would hold.

● N projection: The targets can be calculated by adding the distance of the previous upleg (from A to B),
or its whole number multiples, to the low at C.
N1 = C + (B – A) = 2,472 + (2,690 – 2,330) = 2,832
N2 = C + (B – A) x 2 = 2,472 + (2,690 – 2,330) x 2 = 3,192
N3 = C + (B – A) x 3 = 2,472 + (2,690 – 2,330) x 3 = 3,552

● E projection: The targets can be calculated by adding the distance of the previous upleg (from A to B),
or its whole-number multiples, to the high at B.
E1 = B + (B – A) = 2,690 + (2,690 – 2,330) = 3,050
E2 = B + (B – A) x 2 = 2,690 + (2,690 – 2,330) x 2 = 3,410
E3 = B + (B – A) x 3 = 2,690 + (2,690 – 2,330) x 3 = 3,770
115


● V projection: The targets can be calculated by adding the distance of the previous downleg (from B to
C), or its whole-number multiples, to the high at B.
V1 = B + (B – C) = 2,690 + (2,690 – 2,472) = 2,908
V2 = B + (B – C) x 2 = 2,690 + (2,690 – 2,472) x 2 = 3,126
V3 = B + (B – C) x 3 = 2,690 + (2,690 – 2,472) x 3 = 3,344

● NT projection: The targets can be calculated by adding the distance of the previous downleg (from A to
C), or its whole-number multiples, to the low at C.
V1 = C + (C – A) = 2,472 + (2,472 – 2,330) = 2,614
V2 = C + (C – A) x 2 = 2,472 + (2,472 – 2,330) x 2 = 2,756
V3 = C + (C – A) x 3 = 2,472 + (2,472 – 2,330) x 3 = 2,898

The NT projection is not displayed on the chart, as it was not adequate to use this projection method in this
particular case.

116


Fig. 15 is a daily chart of Sojitsu, an integrated Japanese trading company, from October 2011 into 2012. It hit the
first low at 114 (A) and an intermediate top at 131 (B9), followed by a secondary low at 116 (C). Then it rallied and
formed an intermediate top at 138 (D), followed by a brief dip that terminated at 129 (E).

(Fig. 15) Example of Price Projection - Sojitsu

(daily.2011/11/1-2012/3/22)
（ Yen）
170
(E projection)
(V projection)
(E projection)
160
17 =D+(D-C) (N projection)
15
150 22 =E+(D-C)
=B+(B-A) 138
=B+(B-C) 22
140 17
11.12/8 D
131 15
B 22
130
17 15
E
120 129
110 A C
116
114
11.12/29
11.11/21
100
11/1 11/16 12/1 12/15 12/30 1/18 2/1 2/15 2/29 3/14

I will not show all the target values projected by all the projection methods discussed above, only the ones that
looked relevant in this particular case.

The target prices projected by the E projection method using the first low (A) and the first intermediate high (B)
are:
E1 = B + (B – A) = 131 + (131 – 114) = 148
E2 = B + (B – A) x 2 = 131 + (131 – 114) x 2 = 165
E3 = B + (B – A) x 3 = 131 + (131 – 114) x 3 = 182

The target prices projected by the V projection method using the first intermediate high (B) and the secondary
low (C) are:
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V1 = B + (B – C) = 131 + (131 – 116) = 146

V2 = B + (B – C) x 2 = 131 + (131 – 116) x 2 = 161
V3 = B + (B - C) x 3 = 131 + (131 - 116) x 3 = 176

The targets projected by the E projection method using the second low (C) and the second intermediate high
(D) are:
E1 = D + (D – C) = 138 + (138 – 116) = 160
E2 = D + (D – C) x 2 = 138 + (138 – 116) x 2 = 182
E3 = D + (D – C) x 3 = 138 + (138 – 116) x 3 = 204

The targets projected by the N projection method using the second low (C), second intermediate high (D), and
third low (E) are:
N1 = E + (D – C) = 129 + (138 – 116) = 151
N2 = E + (D – C) x 2 = 129 + (138 – 116) x 2 = 173
N3 = E + (D – C) x 3 = 129 + (138 – 116) x 3 = 195

One should be alert for cluster areas of projected target prices. In this particular case, one can see that there
are cluster zones at 146–151 and 160–165.

118


Fig. 16 is a daily chart of Nippon Kayaku, a diversified chemical company based in Japan, from September to
December 2012.

(Fig. 16) Price Projection - Nippon Kayaku

(daily.2011/9/1-2012/1/25)

（ Yen）

11.9/29

829
840 A 12/7
803
820
97
C
800

780
93
760
755

740
9/12

720 B
732
700 11/7 D
26 710
680 12.1/18
27

660

9/1 9/15 10/3 10/18 11/1 11/16 12/1 12/15 12/30 1/18

I am including this to show how the price projection must be done together with the time projection.

The first target price projected by the N method using the first high at 829 (A), the first intermediate low at 732
(B), and the secondary high at 803 (C) was 706 (C – (A – B)). Actually, the market hit bottom when it
approached the said target price at 710. It took place during a projected time window for a trend reversal. There
were 26 trading days between the first high (A) and the second low (B). The time zone centering on the day 26
trading days after the second top (C) was the projected time window. The actual bottom was just one day off.

I will discuss time projection in more detail in the next section.

119


6. Time Projection

One striking characteristic of the Ichimoku theory is the degree of importance it places on the time factor.
Hosoda taught, “It is not that time merely passes as prices fluctuate in the market. Time influences the market.
The market is dictated by time.”

➀ Reversal Dates
a) Reversal
In principle, projected “Reversal dates” are the dates on which the market is projected to “reverse” directions
at relatively high probabilities.

b) Acceleration
The market does not always “reverse” on a Reversal date, however. In a strongly (up or down) trending
market, the existing move sometimes simply “accelerates”, instead of “reverses”, on a reversal date. This
happens more often in a downtrending market, than in an uptrending market. Suppose there is a market that
has been moderately declining into a Reversal date. If it cannot reverse direction during that time window,
oftentimes it starts falling sharply.

c) Extension
Comparatively speaking, this does not happen as often in an uptrending market as in a downtrending market.
In an uptrending market, the market sometimes reverses directions after the projected Reversal date, with a
delay, due to a phenomenon called “extension” (of a reversal time window).

Apart from the reversal and acceleration phenomena, volatility tends to rise on Reversal dates.

According to the Ichimoku theory, “acceleration” and “extension” are caused by the interaction of the Base
line, Conversion line, and Lagging line.

➁ Reversal date projection
Ichimoku calculates “Reversal dates” in the following two ways. These two methods can be used separately or
simultaneously.

a) “Basic number”-based projection
b) “Time parity”-based projection
120


➂ “Basic number”-based projection
Reversal dates are projected by adding what are called the “Basic numbers” in the Ichimoku theory (e.g., 9, 17,
26) to the dates on which the market reversed direction in the past into the future. Fig. 17 illustrates this.

(Fig. 17) “Basic number”-based projection D
C
Add a Basic number
A Add a Basic number
Add a Basic number
121


Following are the “Basic numbers” to be used with daily data according to the original Ichimoku theory. After
many years of research, Hosoda concluded that these were the most useful default parameters.

(Fig. 18) “Basic numbers” to be used with daily data
Basic number Comments
9 Useful for calling intermediate tops/bottoms
17 Useful for calling intermediate tops/bottoms
26 Useful in up markets
33 Particularly useful in down markets
42 Very important in both up and down markets
51 –
65 More useful in up markets than in down markets

Some Ichimoku researchers claim that they have found that 5, 13, and 21 should be added as Basic numbers
when dealing with weekly data.

Advanced Ichimoku practitioners use the Basic numbers in conjunction with the wave analysis in accordance
with the wave structure principles discussedearlie, which helps gauge which Basic numbers are likely to be
most effective.

➃ “Time parity”-based projection
In this method, Reversal dates are projected by adding the same time distance (the number of days) between
two key dates in the past (on which the market reversed direction in the past) to the pivot date (a key date on
which the market hit a major top or bottom) from which to project into the future. This takes advantage of the
phenomenon that the market often reverses direction when the same amount of time has passed from a key
reversal date in the past as the amount of time between past major events in the markets.

122


(Fig. 19) Time parity projection

A

C

B

(4)

D

(1) (1)

(2) (2)

(3) (3)

(4)

Fig. 19 illustrates this.
(1) Add the time distance (the number of the days) between the high C and the low D to the date of the low D
into the future
(2) Add the time distance (the number of the days) between the low B and the low D to the date of the low D
into the future
(3) Add the time distance (the number of the days) between the high A and the low D to the date of the low D
into the future
(4) Add the time distance (the number of the days) between the high A and the high C to the date of the low D
into the future

123


Fig. 20 is a daily chart of the Nikkei Stock Average in 2011. The Basic numbers (9, 17, 26, 33, 42, 51) are counted
from the top A, bottom B, and the top C, to show how the market behaved on the projected dates. Also, it is
shown how Time parity-based projections were made using the dates of the same major market events (top A,
bottom B, and top C).

The Nikkei hit an intermediate top near 9 days (a Basic number) after the top A and started plunging into a
major low B, which was projected by the Basic number 17. Near the point 51 days (a Basic number) after the top
A, an intermediate top was formed. And the Nikkei hit the major top C 79 days (close to a Basic number 77)
after the major low B.
Time parity-based Reversal date projections were conducted in the following manners:

(Fig. 20) Example of Time Projection

Nikkei Stock Average (daily chart)
11.2/21
（ Yen） 10857
12000 A
95 95
11.11/25
11500 9 17 26 33 　42 51
| | | | | | 7/8
11000 10137
C 9 17 26 33 42 51
10500 | | | | | |
10000
9500
9000
8500
9 17 26 33 42 51
8000 | | | | | |
B
7500 8605 11.11/1
79
3/15
7000
1/5 2/3 3/4 4/4 5/6 6/3 7/1 8/1 8/21 9/10 9/30 10/20 11/9 11/29 12/19

● There were 95 trading days between the top A (February 21) and the top C (July 8). Adding this
number of days (95) to the date of the top C, a Reversal date was projected at November 25.

● There were 79 trading days between the low B and the top C. Adding this number of days (79)
124


to the date of the top C, a Reversal date was projected at November 1.

Fig. 21 shows what actually happened subsequently:

(Fig. 21) Example of Time Projection & Results
11.2/21

10857
（ Yen）
A
95 95
11500
95
12.4/12

11000 7/8

10137
10500
C

10000
10/28
9050
9500
E
9000

8500
D
8000 79 77 9 17 26 33 42 51
8374
B F | | | | | |
9/26
7500 8605 8160

3/15 11/25
7000
1/5 2/10 3/18 4/25 6/3 7/8 8/15 9/20 10/27 12/5 1/13 2/17 5/2 7/16 9/29 12/13 2/26 5/12

● On October 28 (Fri), just two trading days off from the projected Reversal date of November 1
(Tue), the market hit a considerable intermediate top (E).

● On November 25, the exact projected Reversal date, the Nikkei hit a major low (F).

125


Fig. 22 is a daily chart of Nikkei Stock Average. The basic numbers are counted from the date of the low C. The
market hit a considerable intermediate top D 9 days (a Basic number) after the low C, a considerable low E at 17
days (a Basic number) after the low C, an intermediate top F 26 days (a Basic number) after the said low, and
terminated consolidation at G 33 days (a Basic number) after the said low. The time zones projected with the
Basic numbers 42 and 51 also corresponded with interesting market actions.

The circled numbers are the number of days between the dates of notable highs and lows hit during the period.
One would notice that the Time parity-based projection worked well to call market turns. Also, the one would
notice that the numbers are close to the Basic numbers. To be sure, separately run Basic number-based
projection and Time parity-based projection often converge.

The above may or may not be enough to show why Hosoda and many dedicated Ichimoku practitioners believe
“time influences the market, and the market is dictated by time."

(Fig. 22) Basic numbers & Time parity projection

（ Yen） 51
10000 27 25
Base number
10/28 9 17 26 33 42 51
9500
9050
B 12/7
8722 1/4
9000
D 8560
F
8500
A E G
8382 C 8296 8378
8000
10/5 8160 12/19 1/16
11/25 9
9 10 8
7500
17 19 17 17
35 33
7000
9/12 10/20 11/28 1/5 2/10

We will never be able to win in the market as long as we attempt to follow rumors or unfounded expectations
in the market, thinking that this is the way to make money. It is imperative to try to find unknown market
126


drivers, rather than chasing known ones. We should not think about the market based on news or other factors
that are already known. It should be the other way round. We should evaluate, and make a judgment on,
publicly known factors based on how the market is behaving. At the end of a major bull market, the market is
full of positive news and stories. At the end of a major bear market, negative news and stories abound. When
the market stops reacting to such positive or negative news or stories, it is the very moment when we should
enter the market, of course, from the other side of the other players in the market. We have to do it swiftly and
decisively. If we rely on our judgment alone, we will feel uneasy at the decisive moment; oftentimes past
failures prevent us from focusing on the present. This prevents us from what we have to do as professional
market players. Ichimoku is a great tool to help us focus on the present, develop a flair for playing the market,
and do what we must as a professional trader/investor.

Created for IFTA colleagues based on the educational material of Nippon Technical Analysts Association (NTAA).

127

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2. Composition of the Ichimoku Chart

(Fig. 1) Composition of ICHIMOKU chart

3. The Five Basic Lines and Their Uses/Functions

4. Waves Structure Principles

(Fig. 8) Top forming

(Fig.11) Daily chart of NIKKEI Stock Average

● Y projection (to be used in Y waves) – Y = B + (A – C)

(Fig. 15) Example of Price Projection - Sojitsu

V1 = B + (B – C) = 131 + (131 – 116) = 146

(Fig. 17) “Basic number”-based projection D

A Add a Basic number

Add a Basic number

(Fig. 20) Example of Time Projection

to the date of the top C, a Reversal date was projected at November 1.

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