Ichimoku Kinko Hyo Indicator

Ichimoku Kinko Hyo Indicator

The Ichimoku Kinko Hyo is a versatile indicator that has useful components that help you determine dynamic support and resistance levels, and also identify trends.

The Ichimoku indicator is one of the most popular forex trading indicators, and for the right reasons. It predicts market trends with reasonably high accuracy and serves as an important dynamic support/resistance.

Here’s what you need to know about the indicator.

What is the Ichimoku Kinko Hyo indicator?
The Ichimoku Kinko Hyo is a technical indicator that can be used to trade trends and supports and resistances. A Japanese writer who needed to interpret the financial market chart at a glance invented it. This explains the name “Ichimoku Kinko Hyo”, which roughly translates to “A Glance at the Chart in Equilibrium.” By the way, if you think the name is a mouthful, just call it the Ichimoku.

A first glance at the Ichimoku may give novice forex traders the chills with its complex looks. But once you know what every line stands for on the indicator, it could quickly become a useful tool in your forex trading arsenal.

Features and Advantages of the Ichimoku
The Ichimoku comprises 5 components, with each line telling a different story.

1. Tenkan sen
The Tenkan sen is the red line of the Ichimoku. It is calculated by averaging the sum of the highest high and the lowest low prices in the past 9 periods. Another name for the Tenkan-sen is the conversion line.

2. Kijun sen
Similar to the Tenkan sen, Kijun sen, or the baseline, is calculated by averaging the highest high and lowest low prices. Only that the scope is the last 26 periods.

3. Senkou Span A
The Senkou span A, or the leading span A, is one of the boundary lines of the cloud you see on the Ichimoku. It is calculated by averaging the Tenkan sen and Kijun sen values of the past 26 periods. The results are then plotted 26 days ahead on the chart. In other words, the Senkou span value that corresponds with your currently developing candlestick was actually the value 26 periods to the back.

4. Senkou Span B
This is the other line that makes up the cloud. It’s calculated by averaging the highest high and lowest low of the past 52 days, but the result is plotted 26 days ahead. The Senkou span be is also called the leading span B.

5. Chikou span
The Chikou span has no complications. It is simply the closing price of the current candle shifted 26 days behind. Another name for the Chikou span is the lagging span.

How to Use the Ichimoku in Your Trading
Now, if you’re like me on my first encounter with the Ichimoku, you would be overwhelmed by how much information just one indicator can give. You just wish to know how to make trades based on it.

Here’s how to use the Ichimoku indicator on your MT4:

1. Trend Trading
The cloud is arguably the most reliable component of the Ichimoku for trend trading. The market is bullish when the price is above the cloud. Conversely, the market is bearish when the price is below the cloud.

The Chikou span is another useful trend trading component of the Ichimoku Kinko Hyo. When the price is above the unstable green line, the market is bearish. And when the price falls below the line, the currency pair is bullish. It may sound counterintuitive, but that’s just the way it is.

The image above shows the Chikou span alone. Other lines have been erased to help you see the Chikou span in action.

2. Trend continuation
The combination of the Tenkan and the Kijun is unique. You can use both lines to determine trend continuations. For instance, any time the Tenkan crosses over the Kijun to the upside while the cloud is bullish, it is an indication that the trend might proceed higher. You may even place your trade entries at these points.

Who Can Use the Ichimoku Indicator?
Any forex trader, beginner or expert, can use the Ichimoku indicator. However, we advise that anyone who uses this indicator, or any other indicator, should not use it in isolation. For best results, combine the indicator with other technical trading tools.

Summary
True to what the developer intended the indicator for, the Ichimoku does give you a useful insight into what is going on on a currency pair. In addition to that, it can fit into any forex trading style and strategy. It’s not surprising that it has managed to remain in existence after over 5 decades of its development.