Ichimoku Kinko Hyo Indicator

Ichimoku Kinko Hyo (or simply Ichimoku), is a comprehensive charting system developed in Japan before World War II by a newspaper writer. The name translates to “one look equilibrium chart,” reflecting its ability to provide a complete view of the market at a glance. Ichimoku combines several indicators into one, helping traders understand the trend, support and resistance levels, and potential reversal points all in a single chart.

Traders use Ichimoku to get a clear picture of the market without juggling multiple indicators. It shows the trend direction, momentum, and key support and resistance levels, making it easier to decide when to enter or exit trades. Ichimoku is versatile and works well on different timeframes and with various assets like stocks, forex, and commodities.

How Ichimoku Works

Ichimoku consists of five main components:

1. Tenkan Sen (Conversion Line): Calculates the average of the highest high and lowest low over the past 9 periods.

2. Kijun Sen (Base Line): Calculates the average of the highest high and lowest low over the past 26 periods.

3. Chikou Span (Lagging Line): Plots the current closing price 26 periods back on the chart.

4. Senkou Span A (Leading Span A): The average of the Tenkan Sen and Kijun Sen, plotted 26 periods ahead.

5. Senkou Span B (Leading Span B): The average of the highest high and lowest low over the past 52 periods, plotted 26 periods ahead.

The area between Senkou Span A and Senkou Span B is called the Kumo Cloud. The cloud changes color based on which span is higher, indicating bullish or bearish conditions.

Reading the Ichimoku Indicator

• Trend Direction:

  • Above the Cloud: the market is in an uptrend.

  • Below the Cloud: the market is in a downtrend.

  • Inside the Cloud: the market is consolidating or in a neutral phase.

• Tenkan Sen and Kijun Sen Cross:

  • Bullish Crossover: when Tenkan Sen crosses above Kijun Sen, it may signal a buy opportunity.

  • Bearish Crossover: when Tenkan Sen crosses below Kijun Sen, it may signal a sell opportunity.

• Chikou Span:

  • Above Price: confirms a bullish trend.

  • Below Price: confirms a bearish trend.

• Kumo Cloud:

  • Bullish Cloud: senkou Span A is above Senkou Span B.

  • Bearish Cloud: senkou Span A is below Senkou Span B.

Using Ichimoku in Trading

Ichimoku helps traders make decisions by providing multiple signals:

• Identifying Trends. Determine if the market is trending up, down, or sideways by looking at the position relative to the Kumo Cloud.

• Finding Support and Resistance. The edges of the Kumo Cloud act as dynamic support and resistance levels.

• Spotting Reversals. Crossovers of Tenkan Sen and Kijun Sen, along with the position of Chikou Span, can indicate potential trend reversals.

Exercise

Objective: Use the Ichimoku Kinko Hyo indicator to identify buy and sell signals on a real asset.

Scenario: Trading GBP/JPY on a Daily Chart

1. Set Up the Indicator:

   • Open your trading platform and select the daily chart for the GBP/JPY currency pair.

   • Add the Ichimoku Kinko Hyo indicator with default settings (9, 26, 52).

2. Identify a Buy Signal:

   • Check if the price is above the Kumo Cloud.

   • Look for Tenkan Sen crossing above Kijun Sen.

   • Ensure the Chikou Span is above the price.

   • If these conditions are met, consider entering a long position.

3. Identify a Sell Signal:

   • Check if the price is below the Kumo Cloud.

   • Look for Tenkan Sen crossing below Kijun Sen.

   • Ensure the Chikou Span is below the price.

   • If these conditions are met, consider entering a short position.

4. Review Your Trades:

   • Track your buy and sell decisions based on Ichimoku signals.

   • Note how often these signals lead to successful trades and adjust your strategy if needed.

Ichimoku is kind of complicated, bus still one of the most popular indicators, loved by many traders. I hope you will love it too.