Definition:

The name of the Ichimoku Kinko Hyo or IKH indicator means "chart equilibrium at a glance.” This very useful technical analysis technique was originated by Tokyo journalist Goichi Hosod in pre-WWII Japan, but was only released to the public in the late 1960’s.

In general, the Ichimoku Kinko Hyo indicator provides a wealth of helpful directional information for traders, including clear trading signals. Traders also use the IKH to assess the existence and direction of a trend, as well as to provide initial and secondary support and resistance levels.

The IKH indicator seems to work best on daily or weekly charts, and it consists of five lines that have Japanese names and traditional colors as follows:

1. The The Tenkan-Sen or conversion line is plotted in red.
2. The Kijun-Sen or base line is plotted in maroon.
3. The Chikou Span or lagging span is plotted in pink.
4. The Senkou Span A is plotted in green
5. The Senkou Span B is plotted in blue.

The Senkou Span consists of the shaded area between the Senkou Span A and B lines, while the Ichimoku Cloud or Kumo is the distance between the A and B lines at any given time period.

Sample Chart:

Usage:

The Tenkan-Sen line indicates the market’s trend. If it is rising or falling, the trend exists, but when it is flat, the market is ranging.

The Kijun-sen base line indicates market movement. When the market trades above this line, it will probably continue to rise, and when below it, to fall. When the market crosses the line, a trend reversal becomes likely.

The Kijun-sen and Tenkan-Sen lines can also provide trading signals. When the Tenkan-sen line crosses the Kijun-sen line from below, that generates a buy signal. When it does so from above, that gives a sell signal.

If the Chinkou Span or lagging line crosses upwards above the market price, then that generates a buy signal. Conversely, a short signal occurs if that line crosses below the market price from above.

The vertical line between the Senkou A and B lines is refered to as an Ichimoku Cloud or Kumo. This line provides another trend indicator, and when the price trades below it, that indicates a bearish market, while above it indicates a bullish trend.

Furthermore, when the market trades between lines A and B, the market is not considered to be in a trending state, and support and resistance levels exist at lines A and B. Also, when the market trades over the Ichimoku Cloud, its upper line gives primary support, and its lower line gives secondary support. Conversely, when the market trades under the cloud, the lower line presents primary resistance, and the upper line secondary resistance.

Calculation Method:

Define:

• High(n periods) = The high price traded during n time periods.
• Low(n periods) = The low price traded during n time periods.
• N1= First number of periods or interval.
• N2= Second number of periods or interval.
• N3= Third number of periods or interval.
• N4= Fourth number of periods or interval.

Calculate:

• Tenkan-Sen = [MAX(High(N1 periods) + MIN(Low(N1 periods)]/2
• Kijun-Sen = [MAX(High(N2 periods) + MIN(Low(N2 periods)]/2
• Chikou Span = The current close price graphed N2 time period bars back.
• Senkou Span A = [Tenkan-Sen + Kijun-Sen]/2 and it is graphed N3 time period bars ahead.
• Senkou Span B = [MAX(High(N4 periods) + MIN(Low(N4 Periods)]/2 and it is graphed N2 time period bars ahead.
• Typical parameters might be: N1=8, N2=22, N3=26 and N4=44 time periods.

Practice Ichimoku Trading

Technical analysis with Ichimoku is a demanding skill that requires practice to master. We recommend that you use a demo account to train yourself for free before applying your skills to real money trading.
Most reputale trading platforms today (for example: GFC Trader, AVA Trader, Meta Trader) feature technical indicator functions which can be applied on real-time charts. You can open a free account, download the trading software and start sharpening your technical analysis skills today!

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