Ichimoku Indicator

Ichimoku Indicator

Ichimoku is a versatile indicator that has useful components to help identify dynamic support and resistance levels, as well as identify trends.

Categories: Trend, Signal, MT5

The Ichimoku indicator is one of the most popular Forex trading indicators, and for good reason. It predicts market trends with fairly high accuracy and serves as an important dynamic support/resistance.

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

What is the Ichimoku indicator?
Ichimoku is a technical indicator that can be used to trade trends, support and resistance levels. It was invented by a Japanese writer who needed to interpret a financial market chart at a glance. This explains the name “Ichimoku”, which roughly translates to “Looking at the chart in balance”. By the way, if you think this name sounds too big, just call it Ichimoku.

A first look at the Ichimoku can give novice forex traders goosebumps at its intricate appearance. But once you know what each indicator line means, it can quickly become a useful tool in your Forex trading arsenal.

Features and Advantages of the Ichimoku
Ichimoku consists of 5 components, each of which tells its own story.

1. Tenkan sen
Tenkan sen is the red line of Ichimoku. It is calculated by averaging the sum of the highest and lowest prices over the last 9 periods. Another name for Tenkan-sen is a conversion line.

2. Kijun sen
Like the Tenkan sen, the Kijun sen or base level is calculated by averaging the highest highs and the lowest lows in prices. Just that the scope is the last 26 periods.

3. Senkou Span A
Senkou Span A, or leading Senkou A, is one of the boundary lines of the cloud you see on Ichimoku. It is calculated by averaging Tenkan sen and Kijun sen over the last 26 periods. The results are then plotted on a graph 26 days ahead. In other words, the value of the Senkou range that corresponds to your current developing candle was actually the value 26 periods ago.

4. Senkou Span B
This is another line that makes up the cloud. It is calculated by averaging the highest high and lowest low of the last 52 days, but the result is displayed 26 days ahead. The senko span is also referred to as the forward span B.

5. Chikou span
Chikou span has no complications. This is simply the closing price of the current candle moved back 26 days. Another name for a chikou span is a lagging span.

How to Use the Ichimoku in Your Trading
Now, if you’re like me when I first met Ichimoku, you’ll be overwhelmed by how much information just one indicator can provide. You just want to know how to trade based on it.

Here is how to use the Ichimoku indicator on MT5:

1. Trend Trading
The cloud is perhaps the most reliable Ichimoku component 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 Ichimoku component for trend trading. 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. This may sound counterintuitive, but that’s 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 Tenkan and Kijun is unique. You can use both lines to determine the trend continuation. For example, every time the Tenkan crosses the Kijun upwards when the cloud is bullish, it indicates that the trend may continue upward. You can even post your trade entries in these spots.

Who Can Use the Ichimoku Indicator?
The Ichimoku indicator can be used by any forex trader, novice or expert. However, we advise anyone using this indicator, or any other indicator, not to use it in isolation. For best results, combine the indicator with other technical trading tools.

Summary
In line with what the developer intended the indicator to do, Ichimoku does give you useful information about what is happening on the currency pair. In addition, it can fit into any Forex trading style and strategy. No wonder it has managed to survive after more than 5 decades of its development.