Ichimoku Kinko Hyo is another one in a series of indicators that help in the technical analysis of the market and price movements. The Ichimoku Kinko Hyo serves to determine the future momentum of prices. Besides, analysts use it to determine future areas of support and resistance. So it predicts, or determines, or measures three significant factors in price movements or trends, so it is also called “3 in 1” or “all in one”.
That is what you can see with “one look” at the chart. With one look or glance, you can determine price momentum, support, and resistance. The abbreviated name is Ichimoku itself, consisting of five lines. These are the tenkan-sen, kijun-sen, senkou span A, senkou span B and chikou span.
If you are interested in what is Ichimoku Kinko Hyo, glance at the chart in balance, stay tuned, and keep going through this article. A glance at the chart in balance is a translation of the title of this article from Japanese.
Ichimoku means glance, Kinko means balance or equilibrium, and Hyo means chart. The word Ichimoku also translates as “one look,” which in the previous context would mean that with one look at the chart, you can see everything that can be seen. And what is that?
This chart is for currency pairs, but Ichimoku applies to any trade, meaning any commodity. It is also useful for both rising and falling markets.
It is the turning line, also known as the conversion line. It is derived as the average of the highest high and the lowest low for nine periods. We get this by adding the highest high and the lowest low in the last nine periods, and we divide that result by two. This line is a key level of support and resistance, which is also a signal line for reversal. In the chart above it is a red line.
It is called the standard line, or the baseline, and it is red on the chart. It is the average for the highest high and lowest low for the last 26 periods. According to the previous one, the highest high and the lowest low, for the last 26 periods, are added, so it is divided by two. This line is also a key level of support and resistance, it confirms the change in trend. It can also be useful as a stop and loss trail.
It is also called the leading span A, and it is the sum of tenkan-sen and kijun-sen divided by two. Thus calculated, it is drawn for 26 periods in advance and represents one edge of the cloud on the graph, a green cloud. It is useful for determining future support and resistance areas.
Like the previous one, this one is also called the leading span, this time the leading span B. It is the average, obtained by adding the highest high and the lowest low for the last 52 periods, so divide by two. It also draws for 26 periods in advance. This line is the other edge of the pink cloud on the chart. It also determines future areas of support and resistance.
The purple line on the chart above is the lagging span. It is also called the lag line. It is the closing price of the current period, which is plotted 26 periods behind on the chart. This line is useful as an indicator of possible areas of support and resistance.
Each of the five listed lines has its role and specific use. Before we move on to how to use the Ichimoku indicator and the mentioned lines, we should say, first, when you cannot use this indicator. It is when the market is turbulent, when it trades sideways, in short, when there is no trend, known as trendless. The market is trendless when the price oscillates from one side of the cloud, or rather, from either side.
If the Tenkan Sen line (blueline) moves vertically, up or down, it means that the market is in trend, which means that this line indicates the market trend. If Tenkan Sen moves horizontally, then it is a sign that the market is ranging.
Based on the indications of Kijun Sen, you can predict future price movements. If the price is above this line, the prediction is that it may continue to rise. Surprisingly, if it is below, it can continue to fall.
Senkou Span provides information depending on the price position concerning these lines. Recall, the Senkou Span are the two lines that make up the cloud. If the price is above the Senkou Span, the top line represents the first level of support, and the bottom line is the second level of support. Conversely, if the price is below the Senkou Span, the bottom line of the cloud is the first level of resistance, and the top line is the second level of resistance.
Chikou Span signals purchase or sale. In doing so, you observe in which direction this, on the graph, the purple line is moving. If the Chikou Span crosses the price by moving from the bottom up, it is a buy signal. If it crosses the price from top to bottom, it is a sell signal.
In this chart above, you can see one of the examples with trading signals, support and resistance levels, trend indicators, oscillations, where the crossovers are, and that is where each of the lines has its role, that is why this Ichimoku is all in one!
As said, Ichimoku is useful in every market, at any time, and always this indicator emphasizes following the trend and trading accordingly, not trading against the trend. When you follow the trend, Ichimoku will help you avoid the possible wrong side of the market and the entry into that wrong side.
This chart shows lines in colors different from the previous charts (colors can differ from one chart to another).
The Senkou Span cloud is green, or rather, shaded green. It is, as has been said, a key area of resistance and support. Here you can see that the exchange-traded fund (ETF), which is the SPDR S&P 500 trust, is on a bullish rise all the time because the price is above the cloud. In the case that the price enters the cloud, it would be a signal to investors that there is a possibility of reversing the trend.
When someone is new to the business and has just started trading on the stock market, they may be confused by the Ichimoku chart. At first glance, it looks complicated. However, when they get a little better acquainted with how to use it, they will realize that it is one of the most useful indicators. At the first sight, which is confusing, they will get a tool with which they will be able to have a complete insight into all the mentioned market analyzes at a glance.
Although many lines are intertwined, after getting acquainted with the way it works, you will easily recognize the signals that can benefit you. By handling all these lines, you will have information on many aspects of the stock market.
Well done, you’ve learned one of the key trading terms, be proud of your accomplishment. However, this is not time to stop, continue with the Average True Range!