What Is the Chikou Span?
The Chikou span is a component of the Ichimoku Kinko Hyo indicator. Also known as the "lagging span," it is created by plotting price movements 26 days or trading periods behind the latest closing price of a security. Chikou spans are designed to allow traders to visualize the relationship between current and prior trends.
A trend is deemed to be upward when the Chikou span is located above the closing prices and downward when the indicator is located below them. Many traders watch for the Chikou span to cross below the closing prices as a signal that the price of the asset is getting exhausted and is likely to experience a pullback.
The Basics of the Chikou Span
The Chikou Span is one of the five key lines of the Ichimoku Kinko Hyo, also known as the Ichimoku Cloud, an all-in-one technical indicator that traders use to gauge momentum in the movement of an asset. (The others are the tenkan-sen, kijun-sen, senkou span A and senkou span B.) The Ichimoku Kinko Hyo was developed by Japanese journalist Goichi Hosoda in 1969; "chikou" means "rift valley" in Japanese.
Although the default setting is 26, the number of periods (shown as candles on the chart) used to lag the Chikou span is customizable so that transaction signals are generated more or less frequently. Often depicted in green, the line it creates is used to show possible areas of support and resistance.
A Chikou span that is currently trading above where prices were 26 periods ago suggests a bullish outlook for the security. Current trading below past price trends indicates a bearish trend. If it appears that the Chikou span line is about to cross above the prior price line, it would be a confirmation of an uptick, while a span that is crossing underneath would be a confirmation of a downtrend.
Trading signals based on the Chikou span are strongest when it does not touch or cross over any the prior candlesticks generated by the model. 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.
The Significance of the Chikou Span
Most Ichimoku Kinko Hyo strategies employ the Chikou span as a momentum indicator and as a secondary confirmation tool based on its relationship with the other four Ichimoku lines.
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 span with other momentum indicators to exit or enter positions for potential breakouts.
- The Chikou span is one of five components of the Ichimoku Kinko Hyo indicator.
- It is created by plotting price movements 26 days or trading periods behind the latest closing price of a security.
- Often depicted in green, the line it creates is used to gauge the momentum of an asset, and to help identify possible areas of support and resistance.