How to Make Money Trading the Ichimoku Cloud Charts

by Balkrishna M. Sadekar

Quick Summary

A comprehensive guide to the Ichimoku Kinko Hyo trading system, covering all five components (Tenkan, Kijun, Kumo, Senkou, Chikou) and their practical application across stocks, commodities, futures, and currencies. The book presents specific trading strategies including Kumo breakouts, T/K crosses, and Kijun cross signals with real-market examples.

Detailed Summary

Balkrishna M. Sadekar, founder of Profitable Candlestick Charting LLC and member of the Technical Securities Analyst Association, provides a detailed practical guide to the Ichimoku Kinko Hyo system -- a Japanese charting innovation that translates to "one glance equilibrium chart." The system was developed by Goichi Hosoda, a Japanese reporter who published his findings in the late 1960s after years of refinement, and gained widespread adoption first in Asia and then in the Western world as computers made the calculations accessible.

The book is built around the three fundamental numbers of the Ichimoku system: 9, 26, and 52, which correspond roughly to one-and-a-half weeks, one month, and two months of Japanese trading days respectively. Sadekar strongly advises against modifying these default parameters, as they have proven robust across all time frames and asset classes for decades.

The five components of the system are thoroughly explained: the Tenkan (turning line based on 9-period equilibrium), the Kijun (base line based on 26-period equilibrium), the Kumo cloud (formed by Senkou A and Senkou B spans projected 26 periods into the future), and the Chikou (lagging span plotted 26 periods behind current price). Unlike Western equilibrium concepts based on closing prices, the Japanese approach uses the midpoint of the highest high and lowest low, reflecting the full range of supply and demand dynamics.

The core of the book details five specific trading strategies: the Tenkan/Kijun Cross (T/K Cross) strategy for momentum signals, the Kumo Breakout strategy for trend-following entries, the Kijun Cross for intermediate signals, the Chikou Breakout for confirmation of trend changes, and the Kumo Twist for identifying potential reversal zones. Each strategy is presented with clear rules, real-market examples across stocks, derivatives, commodities, and currencies, and failure scenarios to help traders understand when signals may produce false entries.

The practical trading tips chapter addresses position sizing, the importance of trading in the direction of the larger trend, timing entries after pullbacks, avoiding trades before earnings announcements, avoiding low-volume stocks, option trading strategies combined with Ichimoku signals, and trailing techniques for maximizing gains while protecting profits. The book emphasizes that Ichimoku is a trend-following system, and traders should exercise extra caution when price is within the Kumo cloud indicating consolidation. Sadekar stresses that the holy grail in trading is a myth, and that the system's value lies in providing dynamic support/resistance levels and its unique forward-looking projection capability.