The Chikou span is the lagging indicator component of the Ichimoku Kinko Hyo candlestick trading model. The Chikou is a line of the most recent price action, but it is plotted 26 trading periods into the past. Chikou spans are designed to allow traders to visualize the relationship between current and prior trends.
A Chikou span that is currently trading above where prices were 26 periods ago indicates a present uptrend for the asset. Current trading below past price trends indicates a downtrend. If it appears that the Chikou span line is about to cross above the prior price line, it would be a bullish confirmation sign, while a span that is crossing underneath would be a bearish confirmation sign.
Trading signals based on the Chikou span are strongest when it does not touch or cross over any the prior candles. Any interaction with the past price line is an indication of a choppy or sideways market. If a Chikou span is descending quickly into a past price line, it could be a sign of exhaustion for the asset.
Most Ichimoku Kinko Hyo strategies use the Chikou as a momentum indicator and secondary confirmation tool based on its relationship with the other four Ichimoku lines – the Tenkan-sen, Senkou A, Senkou B, and Kijun-sen.
Another popular use of the Chikou span is to help confirm points of possible resistance or support. The juxtaposition of the current trend against past price trends allows for an easier comparison of peaks and troughs. Traders can then combine the Chikou with other momentum indicators to exit or enter positions for potential breakouts.