The Ichimoku Kinko Hyo is an indicator that helps gauge the future price momentum, shows future areas of support and resistance, and has multiple other signals to assist you in your trading. Don't be intimidated by the name of the indicator my friends!
Invest some of your time into learning about this indicator. It's name may be intimidating BUT, you may find it quite friendly. As a matter of fact, let's call the Ichimoku Kinko Hyo, “Ichimoku” to lighten the load.
This indicator was developed by a Japanese Journalist, Goichi Hosada before World War II. He published the trading technique in 1969.
Ichimoku Kinko Hyo is a Japanese term and is translated in English to:
Ichimoku: “One Look, Glance”
Hyo: “Graph. Chart”
It is the Glance Equilibrium Chart. By the end of this article you should be able to write a 2 page report on the direction of a currency pair just by taking one glance at the Ichimoku, determining it's equilibrium. Just kidding. That might not happen.
Let's dive in and learn what this indicator is and what it does. First, why not see what it looks like? Click on the picture to enlarge it.
If the name didn't intimidate you, the picture might, but stay strong. I promise it's not as bad as its first impression looks.
These are the different lines for the Ichimoku and what they represent:
Blue line (Kijun Sen): It can be called the base line and is calculated by taking the average of the highest high and the lowest low for the past 26 periods.
Red line (Tenkan Sen): Tenkan means "change" and this is also referred to as the turning line. It's derived from averaging the highest high and lowest low from the past 9 periods.
Green line (Chikou Span): Chikou can mean "after the fact". This is the lagging line. It is today's closing price placed 26 periods behind.
Orange & Purple lines (Senkou Span): Senkou means forward. Senkou line A is determined by averaging the Tenkan and Kijun lines and plotted 26 periods ahead. Senkou line B is calculated by averaging the highest high and lowest low for the past fifty-two periods and placed 26 periods ahead.
The Cloud (Kumo): The cloud is the closed in area formed by Senkou A and B. It is also referred to as the Kumo.
Signals of the Ichimoku
- When Tenkan crosses Kijun from below, that is a bullish signal.
- When the Tenkan crosses the Kijun from above, that is a bearish signal.
- When the Chikou Span crosses the current price, that is a signal in the direction of the cross.
- The Cloud (Kumo) is the premiere component of the Ichimoku Indicator.
- When the price is above the Kumo, that is a bullish signal.
- When the price is below the Kumo, that is bearish signal.
- When the price is in the Kumo, the market is ranging.
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