Ichimoku : How I use the Chikou Span for Trading

I had a comment on my use of Chikou Span left by  ‘dcmb’ and I thought it is best to start a new post to further discuss this.

The comment was on the use of Chikou Span and the use of the current price level against it.

at ichiwiki, the chikou was used against the price 26 days ago.

but you are using the chikou against the current price?

So, when do we use Chikou Span against historic price and when do we use it against the current price. I believe, the above is my mistake of not highlighting the scenario better. Or it could also be a case of me not explaining it well enough.

Let’s illustrate it with a series of charts.

In this case, I will use a recent trade that I have on RedHat (RHT).

RedHat at 28 August.

  • Chikou Span have not cut above the price level at 26 periods back
  • From the Chikou Span, I can also see that there is a resistant level at 23.26

So, what does this means?

To me, it means that even if Chikou Span cuts the historic price highlighted by the yellow circle, it will still not be a bullish signal. I would want to see it break above 23.26 as well.

On top of that, we can see from the chart that Tenkan sen have not cut Kijun sen yet. So, not all bullish signals are in place.

2009Aug-Red Hat Inc-800x600_28Aug

Let’s move the date forward on the chart.

RedHat at 1 Sept.

Tenkan sen has cut Kijun sen. But, if we look at Chikou Span, it is pointing down now and has not cut above the historic price yet.

We can also see from the Chikou Span that there is now another immediate resistant level at 22.96

With this, we have 2 resistant levels to break. Personally, when I see 2 resistant levels that is so close, I will want the price level to clear both hurdles before taking a position.

In this case, I see 23.26 as the level to clear.

2009Sep-Red Hat Inc-800x600_1Sept

Let’s move forward on the chart again.

RedHat as of 4 Sept.

As we can see from the chart below, we have bullish confirmation on the following indicators:

  • Chikou Span has break through historic price level and punch through the 2 resistance levels
  • Tekan sen has also cut Kijun sen with both lines pointing up. These are bullish signals.

So, as can be seen when I say ‘Chikou Span cuts the current price level’, it should perhaps be ‘Chikou Span cuts the cuts the immediate resistant levels instead’. Perhaps, that may be clearer.

2009Sep-Red Hat Inc-800x600_4Sept


RedHat (RHT) : Breakthrough Resistance

RedHat (RHT) breakthrough its resistance at 23.34 with a small gap up in the opening today.

This is a bullish sign considering the recent bullish Tenkan sen – Kijun sen cross which I posted earlier.

However, on the Weekly Chart, there is an immediate resistance at 24.52. (Many thanks to K from InvestIdeas for highlighting this to me).

From the Weekly Chart, we can see that there is quite a few attempts to break through this level and failed. I suspect there will be a pullback in the short term.

For now, my Iron Condor is sitting on a small loss.

RedHat (RHT) : Weekly Chart Resistance at 24.52


RedHat (RHT) : Bullish Cross with a Resistant

RedHat just had a bullish cross a few days back (31 August 2009).

The cross comes from a rebound off the kumo support at the same time, it is now facing immediate resistant at 23.24

The resistant level at 23.24 is significant as it is the high for the year. Coincidently, it is also the high back in August 2008 before it plunge down due to the financial crisis.

If it breaks this level convincingly, then we have a bullish play for RedHat. If it fail to cross, I see a potential play for either a Vertical Spread or an Iron Condor.

And my gut feel is that it will not break the level as you can see a high volume sell off when it reach the high in July 2009.

2009Sep-Red Hat Inc-800x600