Ichimoku Kinko Hyo

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    The Ichimoku Kinko Hyo, usually called ichimoku, is an indicator that gives frequent trading signals.

    Like the Japanese candlesticks, this indicator also originates from Japan. Ichimoku kinko hyo roughly translates as “instant look at the balance chart”.

    Because ichimoku has more data points than standard candlestick charts, it gives a clearer picture of potential price action. The lines are based on the 50% point of the highs and lows, compared with the closing price used for candlesticks. Time is also factored in alongside the price action.

    The Elements of the Ichimoku Kinko Hyo

    Tenkan Sen (twisting line): (highest high + lowest low) / 2 from the last 9 periods

    Kijun Sen (standard line): (highest high + lowest low) / 2 from the last 26 periods

    • Chikou Span (delayed line): the actual course shifted 26 periods back in time
    • Kumo (cloud): oscillator built with the difference between Senkou Span A and Senkou Span B
    • Senkou Span A: median of Tenkan Sen and Kijun Sen that is projected 26 periods into the future
    • Senkou Span B: median of the highs and lows of the previous 52 periods, again projected 26 periods into the future

    These are the standard values and can be adjusted by the trader.

    ichimoku1

    Interpretation of the indicator

    • If price is above the cloud (kumo), it is said that the asset is in an uptrend.
    • If price is below the cloud, it is assumed the asset is in a downtrend
    • The border lines of the clouds, meaning the Senkou Span A and B, also show possible levels of support and resistance, particularly when they are horizontal.
    • The thickness of the cloud has meaning — the thicker the cloud, the stronger the support or resistance level is supposed to be. The price can therefore break through thin clouds rather easily.

    The Chikou Span can be used to determine the direction of the trend. If it is above the actual price, it confirms a bullish trend; below the actual price confirms a bearish trend.

    The sell and buy signals are given by the Tenkan Sen and the Kijun Sen. The red line crossing the blue line in an upward motion is a buy signal.

    For better confirmation, this should happen above the cloud, and the Chikou Span should be above the candles.

    If the red line crosses the blue in a downward motion, this is a signal to sell. As before, if this occurs below the cloud and the Chikou Span is below the actual price, this is clear confirmation.