understanding what the name of this indicator means, in order to understand how it is used. The Japanese term “Ichimoku” means “instant view’ or “one glance”, “Kinko” is the equivalent of “equilibrium” or “balance” and “Hyo” means “chart”.
So, we can translate the full name “Ichimoku Kinko Hyo” to “Instant view of the balance chart”. This indicator was developed by Goichi Hosoda around 1969, and from that point forward Ichimoku Kinko Hyo has become a permanent feature in Japanese trading rooms.
The Ichimoku Kinko Hyo Technical Indicator is predefined to characterize the market Trend, Support and Resistance Levels, and to generate signals of buying and selling. Remember this indicator works best on weekly and daily charts, so it's better for long term analysis.
When defining the parameters of the indicator, four time intervals of different lengths are used: these lines, very similar to moving averages, are based upon high and low prices.
It could sound a bit complicated at the beginning, but let’s see the lines and what they represent:
1.1.Tenkan-Sen, RED in our chart, shows the average price value during the first time interval defined as the sum of maximum and minimum within this time, divided by two - (Highest high + lowest low) / 2, calculated over the past nine time periods.
2.2.Kijun-Sen shows the average price value during the second time interval or base line (BLUE) - (Highest high + lowest low) / 2, calculated over the past 26 time periods.
3.3.Senkou Span A shows the middle of the distance between two previous lines shifted forward by the value of the second time interval (ORANGE) - (Tenkan-Sen + Kijun-Sen) / 2, plotted 26 time periods ahead.
4.4.Senkou Span B, GREY in our chart, shows the average price value during the third time interval shifted forward by the value of the second time interval (Highest high + lowest low) / 2, calculated over the past 52 time periods. And Plots 26 periods ahead.
Finally, there is Chikou Span, or lagging span (GREEN), the most current closing price plotted 22 time periods behind. This green Chinkou Span shows the closing price of the current candle shifted backwards by the value of the second time interval.
The distance between the two Senkou lines is hatched with another color and called "cloud" or KUMO. The two Senkou Span (leading) lines are pushed forward in time to represent past support and resistance – similar in concept to the idea that once established, support will continue to provide support until broken when it becomes resistance. The colored area between the two Senkou , the “cloud”, not only defines the trend but acts as support and resistance for price. A very basic precept is: if price is above the cloud then the trend is higher and vice versa.
This means that:
If the price is above the cloud, its upper line forms the first support level, and the second line forms the second support level;
If the price is below the cloud, the lower line forms the first resistance level, and the upper one forms the second level;
If the price is between these lines, the market should be considered as non-trend, and then the cloud margins form the support and resistance levels.
Ichimoku analysis is similar to Moving Average analysis. Buy and sell signals are given by cross-overs.
First we can say that the Kijun-sen BLUE is used as an indicator of the market movement. If the price is higher than this indicator, the prices will probably continue to increase. When the price traverses this line, the further trend changing is possible. Also, the crosses between the Kijun-sen BLUE and the Tenkan Sen RED cross overs are signs of further continuation. A bullish signal is issued when the Tenkan Sen RED crosses Kijun Sen BLUE from below. Conversely, a bearish signal is given when Tenkan Sen crosses Kijun Sen from above.
The Tenkan-sen is used as an indicator of the market trend. If this line increases or decreases, the trend exists. When it goes horizontally, it means that the market has come into the channel.
However, the relative positions of the Kijun Sen and Tenkan Sen are also important: as we just said, basically a crossing of the Tenkan Sen above the Kijun Sen is bullish and a crossing of the Tenkan Sen below the Kijun Sen is bearish.
But we should also take care of the positions of price against the cloud and of the Tenkan Sen and Kijun Sen crossing the relative position of today’s price against that of 26 periods ago. That determines the strength of the signals. The Chikou Span (lagging span) is today’s price moved back 26 periods. If the Chikou Span (today’s price) is below that of 26 periods ago and a sell signal occurs, it is a stronger signal that it had been above the close of 26 periods ago. Equally the opposite is true for buy signals.
Let’s see an USD JPY weekly chart: price is breaking above the first resistance level, base of the cloud. Kijun Sen is about to cross the Tenkan Sen, while Chikou Span is well above the 26 sessions ago price. A clear cut, plus a candle opening inside the cloud, will give a bullish signal, though not the strongest one, as 98.75 level, roof of the cloud, which should act as strong resistance in the pair or probable target.
If the Chinkou Span line traverses the price chart in the bottom-up direction it is a signal to buy. If the Chinkou Span line traverses the price chart in the top-down direction it is a signal to sell
Wednesday, August 19, 2009
NFA - New Rulings Coming Along Will Change The Forex Industry Forever
Hi everyone
Recently I had a nice talk with a top executive of the U.S. Retail Forex Industry. We were talking about the impact that the latest ruling is having on the Forex business.
Under his view, 4 new rules have vast potential to change things in the United States:
1. NFA rule on limiting leverage to 100 to 1 will be enacted very soon
2. NFA rule that mandates that customers receive price improvements on limit orders. It potentially has very wide implications for all firms as it may mean best execution standards. If the NFA reads a typical order in FX which is “hitting a price” as a limit order as well it will mean best execution applies to all orders and that will be very problematic for market makers.
Time isn’t certain on this, but its this year.
3. NFA rule mandating that if firms re-quote negatively they must re-quote positively continuing the theme above of giving customers the absolute best price available at the time. Same time line as above.
4. CFTC is months away from passing IB registration requirements. Although this is one year over due they did just get their new chairman so now he will need to “prove” himself as a tough policeman in the financial arena. The new rules will mandate that all IBs and money managers for US clients have to register with CFTC/NFA.
The specifics of what exact capital requirements and fees will be is unsure but its likely to mirror the futures industry’s.
Recently I had a nice talk with a top executive of the U.S. Retail Forex Industry. We were talking about the impact that the latest ruling is having on the Forex business.
Under his view, 4 new rules have vast potential to change things in the United States:
1. NFA rule on limiting leverage to 100 to 1 will be enacted very soon
2. NFA rule that mandates that customers receive price improvements on limit orders. It potentially has very wide implications for all firms as it may mean best execution standards. If the NFA reads a typical order in FX which is “hitting a price” as a limit order as well it will mean best execution applies to all orders and that will be very problematic for market makers.
Time isn’t certain on this, but its this year.
3. NFA rule mandating that if firms re-quote negatively they must re-quote positively continuing the theme above of giving customers the absolute best price available at the time. Same time line as above.
4. CFTC is months away from passing IB registration requirements. Although this is one year over due they did just get their new chairman so now he will need to “prove” himself as a tough policeman in the financial arena. The new rules will mandate that all IBs and money managers for US clients have to register with CFTC/NFA.
The specifics of what exact capital requirements and fees will be is unsure but its likely to mirror the futures industry’s.
NFA - New Rulings Coming Along Will Change The Forex Industry Forever
Hi everyone
Recently I had a nice talk with a top executive of the U.S. Retail Forex Industry. We were talking about the impact that the latest ruling is having on the Forex business.
Under his view, 4 new rules have vast potential to change things in the United States:
1. NFA rule on limiting leverage to 100 to 1 will be enacted very soon
2. NFA rule that mandates that customers receive price improvements on limit orders. It potentially has very wide implications for all firms as it may mean best execution standards. If the NFA reads a typical order in FX which is “hitting a price” as a limit order as well it will mean best execution applies to all orders and that will be very problematic for market makers.
Time isn’t certain on this, but its this year.
3. NFA rule mandating that if firms re-quote negatively they must re-quote positively continuing the theme above of giving customers the absolute best price available at the time. Same time line as above.
4. CFTC is months away from passing IB registration requirements. Although this is one year over due they did just get their new chairman so now he will need to “prove” himself as a tough policeman in the financial arena. The new rules will mandate that all IBs and money managers for US clients have to register with CFTC/NFA.
The specifics of what exact capital requirements and fees will be is unsure but its likely to mirror the futures industry’s.
Recently I had a nice talk with a top executive of the U.S. Retail Forex Industry. We were talking about the impact that the latest ruling is having on the Forex business.
Under his view, 4 new rules have vast potential to change things in the United States:
1. NFA rule on limiting leverage to 100 to 1 will be enacted very soon
2. NFA rule that mandates that customers receive price improvements on limit orders. It potentially has very wide implications for all firms as it may mean best execution standards. If the NFA reads a typical order in FX which is “hitting a price” as a limit order as well it will mean best execution applies to all orders and that will be very problematic for market makers.
Time isn’t certain on this, but its this year.
3. NFA rule mandating that if firms re-quote negatively they must re-quote positively continuing the theme above of giving customers the absolute best price available at the time. Same time line as above.
4. CFTC is months away from passing IB registration requirements. Although this is one year over due they did just get their new chairman so now he will need to “prove” himself as a tough policeman in the financial arena. The new rules will mandate that all IBs and money managers for US clients have to register with CFTC/NFA.
The specifics of what exact capital requirements and fees will be is unsure but its likely to mirror the futures industry’s.
FX Street Questionnaire Regarding Removal of the Hedging Feature
1. The new NFA rule eliminates the ability of traders to hedge open trades; there has been a lot of discussion about how retail traders may respond to the new rule. How much of your current business do you feel may be lost to off-shore retail brokers?
We don’t feel that our business will be lost to brokers overseas. CMS Forex and its affiliates have multiple offices outside of the United States, located in Bermuda, Tokyo, Saint Petersburg, and Shanghai, with a planned office opening in the United Kingdom. Different rules and regulations apply to the various locations and clients can decide which branch to hold an account with. Recently we’ve had several inquiries about our other offices, but most new clients continue to open accounts with our US branches.
2. Do you think properly educated clients regarding hedging could reduce losses to over-seas brokers?
We think clients are aware that the NFA is only looking out for the clients’ best interest. Regulations passed by the NFA are in place to ensure fair dealing practices. In this case, the NFA had uncovered certain instances where money managers and others have abused the “hedging” feature and also found that traders who are unaware of how to effectively use the feature can incur additional costs without added benefit. However, if a client really wants to use the hedging feature, he/she will find a way to do so, either with multiple accounts or via our offices outside of the US.
3. Do you feel the FIFO rule could negatively affect other strategies or multiple strategies executed in the same account? What else would you caution your traders to be aware of with regards to the new rule?
Since it is a new rule, we think it will take traders, especially those who rely on auto-trading programs for offsetting their positions, a little while to get used to FIFO. Clients will need to come up with more sophisticated trading strategies when holding multiple positions of the same size for the same currency pair. Since FIFO doesn’t go into effect until July 31, CMS Forex is working on educating clients to ensure that the transition will be a smooth one.
4. The NFA stated hedging provides no direct economic benefit and may result in higher transactional impact; have you seen any evidence to contradict that? Have you seen any evidence that indicates removing the ability to hedge will actually reduce a traders risk profile over time?
We originally offered hedging as an added flexible trading tool due to high demand from our clients. When hedging a position, traders are essentially opening a new position, requiring them to pay a spread on that position as well. Beginners who do not really know how to use the hedging feature, can misuse the tool and, as a result, incur higher costs. For more experienced traders, however, hedging can be an integral tool during times of low market volatility.
5. In their report the NFA noted that in a hedge, interest roll-over should wash but typically doesn’t; how do you account for the discrepancy?
There are costs associated with hedging positions, whether it is paying the spread or the difference in roll-over interest. Though clients will not incur any gains or losses on hedged positions due to market fluctuation, clients may incur minor losses on hedged positions due to rollover interest charges. The amount of interest credited for the pair is less than the amount charged to hold the pair. Such losses are usually limited to a few cents per day or a few dollars or cents per standard lot.
6. A simple work around to the current rule appears to be dual accounts at the same or even different brokers. Is there a downside to this approach traders should be aware of?
Hedging can be simulated by using two separate accounts. However, this method presents a greater risk of being margin-called, as the positions do not offset each other in the same account.
7. Will your firm promote the dual-account strategy to keep clients and what can you do to help streamline the process for your current clients who implement hedging?
We will not promote the dual-account strategy; however, having two accounts with CMS Forex may work as a solution for your hedging needs. An alternate option for our non-US clients is to open an account with CMS Forex International.
We don’t feel that our business will be lost to brokers overseas. CMS Forex and its affiliates have multiple offices outside of the United States, located in Bermuda, Tokyo, Saint Petersburg, and Shanghai, with a planned office opening in the United Kingdom. Different rules and regulations apply to the various locations and clients can decide which branch to hold an account with. Recently we’ve had several inquiries about our other offices, but most new clients continue to open accounts with our US branches.
2. Do you think properly educated clients regarding hedging could reduce losses to over-seas brokers?
We think clients are aware that the NFA is only looking out for the clients’ best interest. Regulations passed by the NFA are in place to ensure fair dealing practices. In this case, the NFA had uncovered certain instances where money managers and others have abused the “hedging” feature and also found that traders who are unaware of how to effectively use the feature can incur additional costs without added benefit. However, if a client really wants to use the hedging feature, he/she will find a way to do so, either with multiple accounts or via our offices outside of the US.
3. Do you feel the FIFO rule could negatively affect other strategies or multiple strategies executed in the same account? What else would you caution your traders to be aware of with regards to the new rule?
Since it is a new rule, we think it will take traders, especially those who rely on auto-trading programs for offsetting their positions, a little while to get used to FIFO. Clients will need to come up with more sophisticated trading strategies when holding multiple positions of the same size for the same currency pair. Since FIFO doesn’t go into effect until July 31, CMS Forex is working on educating clients to ensure that the transition will be a smooth one.
4. The NFA stated hedging provides no direct economic benefit and may result in higher transactional impact; have you seen any evidence to contradict that? Have you seen any evidence that indicates removing the ability to hedge will actually reduce a traders risk profile over time?
We originally offered hedging as an added flexible trading tool due to high demand from our clients. When hedging a position, traders are essentially opening a new position, requiring them to pay a spread on that position as well. Beginners who do not really know how to use the hedging feature, can misuse the tool and, as a result, incur higher costs. For more experienced traders, however, hedging can be an integral tool during times of low market volatility.
5. In their report the NFA noted that in a hedge, interest roll-over should wash but typically doesn’t; how do you account for the discrepancy?
There are costs associated with hedging positions, whether it is paying the spread or the difference in roll-over interest. Though clients will not incur any gains or losses on hedged positions due to market fluctuation, clients may incur minor losses on hedged positions due to rollover interest charges. The amount of interest credited for the pair is less than the amount charged to hold the pair. Such losses are usually limited to a few cents per day or a few dollars or cents per standard lot.
6. A simple work around to the current rule appears to be dual accounts at the same or even different brokers. Is there a downside to this approach traders should be aware of?
Hedging can be simulated by using two separate accounts. However, this method presents a greater risk of being margin-called, as the positions do not offset each other in the same account.
7. Will your firm promote the dual-account strategy to keep clients and what can you do to help streamline the process for your current clients who implement hedging?
We will not promote the dual-account strategy; however, having two accounts with CMS Forex may work as a solution for your hedging needs. An alternate option for our non-US clients is to open an account with CMS Forex International.
Facing the New NFA Regulation
On July 31st, 2009 new NFA rules come into effect involving some important changes in the Forex industry. The main measures include hedging prohibition, stop and limit orders not allowed on open positions and a new FIFO (First In, First Out) policy. Some traders have expressed their concern about the rule, which will definitely impact their trading. John Putman explains what are exactly these new rules and why they aren't so dramatic as traders can even benefit from them
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