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Ichimoku 

 

Ichimoku Indicator Purpose


Ichimoku Kinko Hyo is a comprehensive technical indicator tool published over 30 years ago in Japan by Tokyo columnist Goichi Hosoda. This indicator measures market momentum and trend. Also Ichimoku outlines levels of support and intents to measure multiple aspects of the market at once. Ichimoku Kinko Hyo indicator provides helpful directional information for traders, including clear trading signals. Traders also use the IKH to evaluate the existence and direction of a trend, as well as to provide initial and secondary support and resistance levels.



Ichimoku Indicator Usage


Ichimoku technical indicator consists of five lines. The calculation for four of these lines involves only the midpoints of previous highs and lows, similar to moving average studies. The concept of the system was to provide an immediate vision of trend sentiment, momentum and strength.
Determining the tendency persistence and corrections:

  • Price moving above the cloud indicates an uptrend
  • Price moving below the cloud indicates a downtrend
  • Price moving within the cloud indicates a sideways trend
  • Cloud turning from green to red indicates a correction during an uptrend
  • Cloud turning from red to green indicates a correction during a downtrend

Determining support and resistance:

  • Primary span A serves as a first support line for an uptrend
  • Leading span B serves as a second support line for an uptrend
  • Leading span A serves as a first resistance line for a downtrend
  • Leading span B serves as a second resistance line for a downtrend

Strong Buy and Sell trading signals occurring above the cloud:

  • Conversion line crosses Base line up from below is a signal to buy
  • Conversion line crosses Base line down from above is a signal to sell

Less reliable Buy and Sell trading signals occurring within the cloud:

  • Conversion line crosses Base line up from below is a signal to buy
  • Conversion line crosses Base line down from above is a signal to sell




Ichimoku Indicator Calculation


  • Tenkan-Sen (Conversion line, blue)
    (9-period high + 9-period low)/2
  • Kijun-Sen (Base line, red)
    (26-period high + 26-period low)/2
  • Senkou Span A (Leading span A, green boundary of the cloud)
    (Conversion Line + Base Line)/2
  • Senkou Span B (Leading span B, red boundary of the cloud)
    (52-period high + 52-period low)/2
  • Chikou Span (Lagging span, green) is close price plotted 26 periods in the past

The area between Senkou Span A and B called the Kumo, or cloud. Kumo (Cloud) is a central element of the Ichimoku system and represents support or resistance areas. It is formed by Leading Span A and Leading Span B.

 

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