Goichi Hosoda's Vision

Goichi Hosoda
1898 – 1982

Goichi Hosoda created Ichimoku Kinkō Hyō as a mathematical method of normalizing price movement. He introduced the idea of moving midpoints of equilibrium and then used those calculations to project a future cloud providing support and resistance levels. He also added an additional line, the confirmation calculation. This line helped to show the physiological probability for a trend continuing.

“The Ichimoku Equilibrium is a technical indicator announced by Goichi Hosoda, who was active as the business manager of the Miyako Shimbun in 1936 under the pen name Yamato Ichimoku.”
Jibun Bank Corporation – How to read the chart

Let’s go back to you wearing the shoes of Goichi Hosoda.

Here you are in Japan in 1929, you’ve been working as a journalist since 1924.

You’ve watched the rice markets boom and bust during your lifetime. Watching and maybe even participated in the global market crash while being a journalist specializing in the financial markets for the local newspaper.

Eventually, you become the general manager of the business news department of Miyako Shimbun newspaper.

Knowing the intrinsic value of rice so you’re watching trades of rice futures, looking for patterns, using candlesticks to help. Being a journalist, you’ve researched all the known indicators of the time. You know about moving averages but you have an idea for something different, similar but different.

You play with different mathematical formulas wondering how you can capture the essence of the trends, dreaming of finding longer-term trend patterns.

Now you have an idea of how to look at current price action and compare it to past prices. You have done moving average calculations for years. After staring at page after page of calculations made by taking daily prices and averaging them with past prices the idea hits you.

Moving Midpoints of Equilibrium

Knowing the moving averages gives you a moving target of equilibrium. You decide to test the moving midpoints of the average.

Your idea is simple, instead of taking the average of past prices you take the highest high and lowest low then divide by two, getting the midpoint between the two. If the markets don’t make a new higher high or lower low during a specific time period, your calculations create a horizontal plateau or flat line.

Smooth moving averages don’t create plateaus. It’s the plateaus that show traders’ psychological threshold, horizontal levels of pain.

The moving midpoints are brilliant but your next idea is even better. You come to your epiphany and have an idea for how to project past and current price action out into the future.

The idea is fantastic but you will need to refine it before trusting it. Time for brute force, pencil on paper, backtesting data to find the best time periods to use. Today you would use a computer.

Being smart and successful so you use the equivalent of the computer in those times, mathematicians. You hire a team of young student mathematicians to do hundreds, then thousands of calculations. You spend years backtesting your ideas. Finally, you believe you have it refined into a neat little system.

It works but something is missing. You want a way to confirm the trend. You’ve created a perfect view of the trends based on the current price. You have nice possible support and resistance areas that are projected into the future. You’ve got the present and the future covered, why not use the past for your confirmation. It just might work.

Goichi Hosoda's Confirmation Calculation

You go back to your student mathematicians with this new formula. Basing it on the idea that memories of past trades can help or hurt the current market action. You backtest several time frames on your sample data. In addition, you choose a familiar time frame that works as well or better than other tested time frames. Finally, you have your confirmation calculation.

Now you know what is going on with the short, medium, and long term trend, where it could get in trouble in the future, and now you are using the past to confirm the validity of the trend.

Your system creates a picture of the price action that lets you glance at a chart and know the trends. It then has a way of confirming those trends. As a bonus, it shows possible support and resistance areas in the future in a non-linear way.

Ichimoku translates: “at a glance” – one glance Kinkō translates: “balance” – equilibrium Hyō translates: “graphical representation” – chart One glance equilibrium chart. A balanced look at charts.

Ichimoku Kinkō Hyō creates balance on the chart.

You call it Ichimoku Kinkō Hyō, one glance equilibrium charts.

You are a genius.

It’s now your edge on the markets. Over the next 30 years, you use your indicators to successfully trade the markets. However, you don’t publish yet as you continue to work on pattern detection, wave movement, and price theory.

You’ve shown a few close friends who are also traders. They convince you to publish your findings. You start by writing a few articles but you don’t use your name.

Ichimoku Sanjin

It’s popular during this time to use pseudonyms. You choose the nickname Ichimoku Sanjin. Meaning, “at one glance… of a man standing on a mountain.”

Under your pen name you publish some articles then in 1969 you, Goichi Hosoda, as Ichimoku Sanjin, publish your book with your formulas and observations, Ichimoku Table First Volume. Your work is well received.

You’re amazing and you’ve created a fascinating fun way to view the markets. In addition, you eventually publish six more books on the subject. Subsequently, you also become one of the most successful traders in Japan at the time.

Ichimoku Kinkō Hyō

And that was how the Ichimoku Kinkō Hyō was born. 

The set of indicators has been used by thousands of traders for over eighty years. With some believing that it might have been the first comprehensive indicator system developed.

Review

You’ve learned how Goichi Hosoda was a writer who lived through market booms and busts before creating Ichimoku Kinkō Hyō with the help of student mathematicians. He used the system for years before releasing it to the world. After publishing a book on the system, the indicator system is well received and is popular during Goichi Hosoda’s lifetime.

After he died in 1982, the indicator fell out of favor before being born again in the 1990s. The indicator is currently in most modern computer trading programs.