Ichimoku Kinkō Hyō
Developed by a Japanese journalist, Goichi Hosada in the early 20th century, Ichimoku Kinkō Hyō is a complicated technical indicator used by chartists to offer trend and momentum data as well as providing reliable support and resistance levels.
The Ichimoku indicator has traditionally been very popular among Japanese traders but is also gaining a big following among traders in the West due to the explosion in online trading and the spreading of information.
Ichimoku Kinkō Hyō is composed of five main lines.
The first is called Tenkan-sen, it is a 9-period simple moving average that is normally red in colour.
Next, we have Kijun-sen, a 26-period simple moving average normally coloured blue. Bullish continuations are indicated when the price action remains above this line and bearish continuations are signalled when the price trades below this line.
The third line in Ichimoku Kinkō Hyō is called the Senkou Span A. This line takes an average of the two lines described above and plots these 26 periods ahead.
The fourth line is called Senkou Span B, which is composed of a 52-period moving average plotted 26 periods ahead of the current price action.
There is also an area on the chart that is located between span A and span B.
This area is called the Kumo (cloud) and is coloured in. When this cloud is wide the price action is considered more volatile and the support and resistance levels are thought to be more reliable.
A thinner Kumo is thought to represent reduced volatility and unreliable support and resistance levels.
- Should Span A find itself above Span B it is considered a bullish signal.
- Should Span B find itself above Span A it is considered to be a bearish signal.
Finally, we have Chinkou Span, a green line that takes closing prices and plots them 26 periods behind on the chart.
It is used to generate signals as well as support and resistance levels.
When this Chinkou Span crosses current price action from below it’s considered a signal to go long. On the other hand, when it crosses the current price from top-down it’s considered a bearish signal.
