Ichimoku Kinko Hyo Part 5: Wave Theory, Price Observation Theory


Hello, it’s Kei from Tokyo. This is the Part 5 of Ichimoku series and
on this video, I’ll be talking about the Wave Theory and Price Observation Theory with
some recent chart examples. And this is going to be the last video for
Ichimoku series, you know, I might be uploading some more videos for catch up in the future,
but officially, this is going to be the last one. So if you already interested in the topic,
please press a good button, and make sure to subscribe and hit a bell for my future
forex educational videos and live analysis. So let’s get started. So on this video, first, I will talk about
Wave theory, then I will show you how to combine time and wave theories together. And after that I will introduce Price Observation
theory, and finally, how to put everything together along with Ichimoku indicator and
I will explain it from some real chart examples in the end, alright? So, let’s just start with the Wave Theory
first. As for the price movement of the market, basically
there are 3 patterns. 1st one is this, when you think about the
market, the price simply either goes up or goes down. Of course, there are some minor price actions
within the continuous major trend, but basically when you look at the movement of the price,
simply there are only two ways,after all, it’s either going up or going down. And, this is one of the wave patterns and
this is called I wave, you know, just like the letter I. On the other hand, when the price goes down
and goes up, then it’s called V hado, V wave, sorry, in Japanese wave is called hado,
HADO, you know, so sometimes I usually call it Hado, but anyways, there’s V wave like
this that appears on the market. And basically speaking, the market moves with
3 waves as 1 major wave, you know, if you add I wave and V wave together, it’s going
to be N wave as you can see here. These are the examples of bull trend, so when
it’s bearish, it’s going to be opposite, I wave would be like this, V wave would be
like this, and N wave will be like this. And these are the typical 3 major wave formations
in Ichimoku Kinko Hyo. And there are some other variations, like
Y wave, P wave, and S wave, and these are just for your information. The major ones are above 3 wave patterns,
well, personally I like this P wave because it often appears on a chart, you know, it’s
a squeezing flag pattern and personally I am good at identifying these reversing edges
in actual trading, but Y and S is relatively more difficult to find on a chart based on
my experience. Basically on these Y and P and S waves, these
patterns often appears as a consolidation chart pattern, and in that case, you trade
along with the major trend, like when the major trend is bullish, then you trade towards
the bullish direction. Sometimes Y wave can be a reversal pattern,
but especially P wave, when you see this pattern on a market, most likely the price breaks
the line upwards when the major trend is bullish like this. So Time Theory is to know when the price could
reverse, you know, it shows the time when the reversal could happen on Henka Bi, a day
of change, and can be a reversal candle, and it works just like a ruler on the market,
like I mentioned on my previous video Part 4, like you measure each candles so that you
calculate and expect the day or the candle of when market can reverse. And in this Wave theory, there are I, V, and
N waves, right? So now, let’s combine these two theories
together. Are you ready? When you combine the Time theory and Wave
theory, for example, let’s say there’s a bullish market. And you measure how long it took from the
beginning to the end of a trend, and let’s say you found it to be 26 days. If that’s the case, then what might happen
for the next 26 days in the future would be these patterns. Like from this day on the highest, it might
further extend bullish momentum for the next 26 days, or it could reverse and come back
to the original price in the next 26 days. That could be I wave hypothesis. Or, the market moved up for the past 26 days
and if the market moves with V wave for the next 26 days, then it could go down once,
but supported somewhere along the way, you know, if there’s support line somewhere,
it will be supported, and eventually it goes up, and renew the highest level. Or. if it’s going to be on N wave, then
the price could go up down, then go up and renew the higher price after 26 days. This is how you combine Time theory and Wave
theory together. So look at the drawing at the bottom. One of the examples can be like this, the
price keeps going down with one of the Kihon Suchi, you know, 9, 17, 26, 33, things like
that, and after that, the market goes up with the same number of days, you know, same number
of candle sticks with N wave like this. Or, another case might be the first price
movement can be V wave, and next wave pattern can be I wave like this, or could be V wave
like this. or, N wave, you know, goes up, down, and up
eventually. And the significance is, it can happen with
the same or similar day cycle, similar number of candle sticks before and after the waves. Look at the example at the bottom. First wave can be V, going down, supported,
and go up to like just half price level, and in the next cycle, the price goes down again,
but supported again, and moves up eventually. And you know this chart formation, right? Yes, it’s a double bottom. so when you calculate the first half V and
the second half V, you might be able to find a certain time cycle, you know, you might
find Taito Suchi there. Finally, when the market moves with N wave
and let’s say the N was created for the first like 9 days, then the second 9 day cycle
can be either I wave, or V wave, or N wave. So as the example below, after you find N
formation, then you might find the price goes down once, but supported somewhere along the
way, and eventually goes up, and you can find V wave in that case, you see? // So again, with the same time cycle, well sometimes
it can be a little different like 1 or 2 candles, but with the similar number of candles sticks,
the market moves with either I or V or N wave between the fist time cycle and the second
time cycle within the market, and it can continue 3, 4 or 5 cycles, and this is how you combine
Time and Wave theories together, and actually analyze the chart this way. And remember, the number of candles sticks
can be anything in Kihon Suchi, like 9, 17, 26, or it can be with any numbers of candles,
but either way, the number of first half and the number of second half candles can be the
same, and it’s called Taito Suchi as I mentioned on the previous video, part 4. So let’s step into Price Observation Theory. Officially, in Japanese, it’s called Ne
haba Kansoku Ron, and if I directly translate them, Ne is price, Haba is the width or volatility
range, and Kansaku means observation, and Ron means theory, so the direct translation
would be Price Width or volatility range observation theory, but I think it’s too long to say
it every time, so I just call it Price Observation Theory in English, but you know the idea from
the original word. There’s some width or volatility range involved
on this theory. So what this means is, simply you find 3 points,
and take those numbers to calculate where the price can be extended in the future, you
know, you can call it a target, or you can call it a reversal point. And basically there are 4 types of calculations,
actually there are some other variations to this, but basically there are 4 types of calculations. The first one is called V calculation. Let me give you an example. Let’s say the market started at point A
and you have the position slightly above that point, you know, you placed buy here. And as you watch the market, it went up to
the point B, but it came back down to the point C and this is where you are at now. So you have some profit already, and now,
looking for where to take the profit. In that case, you can use these calculations
to know the potential target. And you do it by taking the price A and B
and C, and calculate out the point D. So here we go. Let’s look at V calculation first. The idea is very simple, basically you take
the pips from B to C, and you add it to the price of point B, you know, so it’s going
to be twice the higher level from point C. So if B to C is 10 pips, then from C to D,
it’s going to be 20 pips. Alright? This is V calculation. Next, E calculation. This is, you take the pips from A to B, and
regardless of how much the pull back will be, you add that pips to the price of point
B and you get the price D. So if A to B is 20 pips, then from B to D, the market will
be extended another 20 pips upwards. And this is called E calculation. And let me move on to N calculation. You take the pips from A to B, just like E
calculation, you take the distance between A and B, and let’s say the marked pulled
back to the point C, then you add that pips between A and B to the point C, so the pips
between A and B and the pips between C and D will be the same. And let me show you how you can memorize these
calculations. V calculation would be like this, you see
a letter V? And the target D is twice higher from the
pull back to the point C. And E calculation would be like this, you see a letter E here? And N calculation is just like the movement
of the market like this. And these pips will be the same. And moving on to NT calculation, this is a
little tricky so listen carefully. From point A, the price goes up to B, and
pulled back to C, right? And you take the pips between C and A, and
add it onto C so that the pips between C and A, and C and the target D will be the same
and it will be a target based on the NT calculation. How you remember this would be you draw N
here, and you draw T here. And so the distance between C and A, and C
and D will be the same, alright? And I just put each equations here right to
the names, so whether if it’s the uptrend or downtrend, and no matter what pairs you
are looking at, you can simply put prices of each A, B and C, and apply those prices
on the equations, and get expected target D according to each calculation. I will put each equations on the description
below, too, so you can refer to them easily. Let me give you an example. If you are looking at USDJPY and trying to
calculate the target with V calculation, let’s say, when you find the price of point A as
90 yen, and point B as 95 yen, and let’s say the market pulled back to 92.5 yen, which
is going to be the point C. So if you apply these price on the equation of the V calculation
above, it will be 95+95-92.5 and it gives you 97.5, right? That will be the price of target D from this
V calculation. And you can do the same with E, N, and NT
calculations and get each expected targets, you know, you just take 3 numbers, punch them
into the equations, and you get the targets on each calculations. Like I said, there are other variations, like
2E calculation, 3E calculation, simply you add the pips two times or three times to get
the target, or another variation is called half-price calculation, in which you take
each price from V, E or N calculation, and add them up, and divide it by 2. But these are kind of the applied versions,
so I’m not going into details this time, you know, I just introduced them just for
your information. Alright, now let’s look at some real chart
examples. This is a Daily chart of EURJPY. And between this day and this day, during
this bearish momentum, first of all, the lows and highs were moving exactly in 9 day cycle,
which is one of the Kihon Suchi numbers, and I put the yellow vertical lines on those highs
and lows. And first half was bearish V wave, and the
second half was I wave. Well, technically the closing price is up
here so technically it’s also V wave, but if you look at the lowest price, it’s I
wave, ok? And if you look at these prices, the target,
you know, the point D is calculated by V calculation. Like if you look at the price of each point,
the point B is 121.298 yen and point C is 122.337 yen. So 122.337-121.298=1.039 so it’s about 104
pips there. And if the price goes down 104 pips from point
B, what do you get? You take the price of B, 121.298 and minus
1.04, and you get 120.258. And if you look at the chart, it’s almost
at the target, you see? The market was bearish so it might be a little
tricky because you have to go backwards, but you see how I’m combining three theories
together? First you look for where the market moves
with the same internals, like Kihon Suchi, then when you find it, when you find the time
cycle pattern, you check the wave, whether it’s I, or V, or N, then you take the A,
B, C prices, and calculate where the price target could be. Now, of course the market does not always
move based on Time theory or price observation theory, but when you find these patterns on
a chart, it’s worth to trade based on the calculations. So the real life example would be,,, let me
black out a part of the chart so that it looks more realistic, here we go. So, imagine you are looking at a chart like
this. And you are thinking it’s been bearish,
so you know you wanna place sell, but not quite sure where exactly to place it, right? Then when you look at the chart, you see a
V wave with 9 day interval. If you go 9 day backwards, it will be somewhere
like here, so you know it’s the V wave after the bullish I wave. And let’s say you find W top, or head and
shoulder pattern in lower time frame, like H1 or in M15 timeframe here on the wick pointing
upwards. Then you are confident enough to place sell
here, right? Then as you hold the position, the price starts
to go down from point C, however, you have a voice in your head, saying “where should
I take profit?” You know, sometimes taking profit is more
difficult than cutting loss because we are basically all greedy, and you always have
a dilemma of when to take profit because if you take it too early, the price might extend
afterwards, but if the decision is too late, then the profit might turn into loss. So, you have a dilemma of when to take the
profit. And in that case, price observation theory
can give you the answer, you know, based on the prices of A, B and C, do the calculations,
you know, calculate each V, E, N, and NT calculations, and get 4 different targets. Then you take profit as you look at the actual
price action in the market. This is actually how you can initially calculate
the target. Again, you take the point A, B and C, then
calculate the price of D target. And sometimes, the target can be the same
level as support, or resistance lines, or it could be touching the channel line, you
know. Then you have more information that backs
up the target and you can trade with more confidence that way because remember, this
is not a holy grail, so don’t forget to combine with the lines and other indicators
that you can rely on. Alright, let’s look at another example. This is a Daily chart of EURGBP and again,
from the point A, it went up to the point B, went downwards, then reached to the target
D. So, again, if you take the price A and B and C, and this time, I will just give you
the answer. If you calculate the target with N calculation,
it’s going to be the price level of D. So in this case, N calculation was the right
answer, but again, this is obvious because you already see the market. In a live chart, you might be looking at a
chart like this, and maybe you placed a buy here, or let’s do this, let’s say you
are not having any positions this time, and looking for a reverse. Then first, you find the market is being on
a 10 day cycle, so you can imagine that in the next 3 days or so, the market will reach
to some kind of remarkable price level, right? Then you start to calculate with those 4 calculations,
and mark those prices beforehand so that you know when the price is likely to be reversed,
you know, along with lines and other indicators, or perhaps based on some economic news at
that time. Then as time goes by, the price finally resisted
by point D, which was calculated by the N calculation this time, then you place sell
here, and get all these pips. So these calculations are not telling that
it will reach to that price level, but it can work as an aim, you know, or as a potential
target so that it gives you another clarification of what to do next. So again, Time theory suggests a day or a
candle when the price could mark the highest or the lowest, you know, Henka Bi, and it
can be with one of the Kihon Suchi numbers. And these numbers are like a ruler to measure
the potential market cycle. And based on the time theory, Wave theory
suggests to create 3 types of waves within a certain time period, like it could be bearish
I wave with 9 candles, or it could be bullish V wave with 26 candles, things like that. And the point is these I or V or N waves are
linked with the those time cycles. And within the market, same number of days,
or similar number of candles appear often times. And based on these time and wave, you can
calculate the expected price target with V, E, N, and NT calculations that it can be your
target, or it can be a timing for your reversal trades, you know, contrarian trades. And remember to combine it with lines, chart
formations, or fibonacci lines or anything so that it give you more information for your
confident trades, alright? And finally, analyze the market with Ichimoku
indicator to integrate all the theories. Like look at this chart. This is the same EURJPY Daily chart with Ichimoku
indicator on it this time. And look where I was explaining earlier here. And look how the price was resisted by Tenkan
sen and Kijun sen, and they just dead crossed, and the price kept going down. You know, and the price has been below Kumo,
so it shows the market has been bearish in a long term, and the green Chiko span is below
the candles, that it’s also suggesting the market is bearish. And you find the market has been moving by
9 day cycles here, and so you place sell here, and based on the price calculation, you take
profit here, alright? Or you could have been holding the position
until the price hits this blue Kijun sen but either way, this is the typical way to trade
when you combine Ichimoku indicator with 3 theories because the indicator is meant to
be created to put all these theories together, and they actually link together like this. I actually found similar patterns like this
a lot in different pairs with different time frames as I prepare for this recording, so
I want you to actually look at the charts and find them so that you can apply the real
Ichimoku strategies as you keep on trading. First, look for the time cycles, look for
the Taito Suchi where the same time cycle appears on the market, then identify the wave. After that, you could look at the indicator
to know the market situation whether it’s on a trend, how strong it is, where the equilibrium
point can be in the future, you know, where the Senko Span 2 is located, Kijun sen is
located, whether the current candle is within the Kumo or not, things like that, then calculate
the price target or the possible reverse point with 4 calculations, so that you know exactly
which day the market will be reaching to what price level. I will continue to share my findings on Youtube
or on Facebook or Instagram at times, so if you can follow them, it will be great, too. Alright, so that’s it for the video and
that’s the end of the Ichimoku series. You know, I was recording 5 videos total including
this one, you know, from the history how how it’s been created, and philosophy of the
original inventor, to the meaning of 5 lines, to the 3 theories and everything. And ever since I uploaded the first video,
I’ve been getting lots of emails and messages from traders around the world, showing their
gratitude, so thank everyone for being supportive. You know, my youtube followers became over
500 members now, so I really thank you for your support, it really keeps me going, and
I will keep creating more valuable videos and articles for forex lessons. I will put the link to each video from Part
1 to Part 4 of this whole Ichimoku series on the description below, so if you haven’t
watched them yet, just feel free to watch them over and give me your feedback on the
comment box below. Alright, if you liked the video today, please
press a good button, and please subscribe and hit a bell so that you get automatic notification
when I upload a new educational forex video, or when I do live forex analysis. Alright, see you on the next one.Stay gold, Matane,

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