The Ichimoku Kinko Hyo is an indicator that stands out given its unique name. The name comes from Japanese origins as this indicator was invented by a Japanese investor many decades ago. Ichimoku Kinko Hyo translates to one glance equilibrium chart or instant look at the balance chart and is sometimes referred to as a “one-glance cloud chart” based on the unique “clouds” that feature in Ichimoku charting. The indicator is powerful because it does multiple things at the same time. It attempts to gauge price momentum while also looking at areas of support and resistance for the market that you are looking at as well.
It brings all of those elements together to create a beautiful-looking set of figures and indicators that will appear across your screen all at once. Naturally, you will want some explanation of what you are looking at when all of these lines and figures begin to appear at the same time. Before we get to that, let’s take a look at some of the upsides of the Ichimoku Kinko Hyo.
Advantages of the Ichimoku Kinko Hyo Indicator
This indicator is dynamic in that it can be used across all time frames and throughout all of the different currency pairs that you could possibly want. It was originally developed for rice trading, but its information is valuable in the sense that it makes it a lot easier to see how the various levels of support and resistance are likely to stack up and make it clearer than ever how the trade is likely to unfold.
Traders tend to like that they can use the Ichimoku Kinko Hyo across whichever time frame they prefer, but they also need to be aware that it is not very useful when there is no clear trend. As long as traders are aware that it is not very useful when price action is ranging, they should have no problem using this indicator when they wish to.
What do all of these Lines Mean?
Your real question about the Ichimoku Kinko Hyo indicator is likely to be what all of the various lines and graphs on it mean. Here is a little breakdown of what they are:
Kijun Sen – The baseline is created by averaging the highest and lowest points for the last 26 periods of price movement on this pair
Tenkan Sen – The average of the highest and lowest points of the last 9 periods of price movement
Chikou Span – Today’s closing price plotted 26 periods behind (lagging)
Senkou Span – Averaging the Kijun Sen and the Tenkan Sen and plotting it 26 periods ahead
What you will see will look somewhat like a mess in the beginning, but the purpose of this indicator is to try to help you see where there are areas of support or resistance developing in the future and to allow you to get in on the right side of the trade to make the most money from your orders. It is also meant to show you when a trend may begin forming, or when one may be ending. You need all of that data to make accurate predictions about where the pair is headed next, and the Ichimoku Kinko Hyo is the best way to draw conclusions about where things are going in that respect.
How to Trade the Ichimoku Kinko Hyo
We’ll take a look at the Senkou span first. When the price is ABOVE the Senkou span:
1. The top line operates as the first support level.
2. The bottom line serves as the second support level.
When price is BELOW the Senkou span:
1. The bottom line outlines the first resistance level.
2. The top line is the second resistance level.
In the meantime, the Kijun Sen presents an indicator of future price movement.
1. If price is ABOVE the blue line, it could maintain a climb higher.
2. If price is BELOW the blue line, it could keep falling.
The Tenkan Sen serves as an indicator of market trends.
1. If the red line is going up or down, it implies that the market is TRENDING.
2. If it is more or less horizontal, it indicates that the market is RANGING.
Finally, when it comes to the Chikou Span — the green line:
If it crisscrosses the price in a BOTTOM-UP direction, that’s a BUY SIGNAL.
1. If the green line crisscrosses the price from the TOP-DOWN, that’s a SELL SIGNAL.
2. Take a look at this chart, complete with all the signals presented by the Ichimoku Kinko Hyo:
Those who feel that they can learn something interesting from this indicator are those who want to get an idea of what the future holds in a trending market. That is great news, but it should also be noted that there is no shame in backing away from this indicator until you fully understand it.
You do not want to deal with something that is beyond your comprehension, and this one takes a while to figure out what is going on. Thus, you should try to take a step back and make sure you fully grasp it before moving on to the next thing.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.