Ichimoku Kinko Hyo is a complicated looking trend-following indicator that turns out to be much simpler than it initially appears.
This Japanese indicator was created to be a standalone indicator that shows current trends, displays support/resistance levels, and indicates when a trend has likely reversed.
Ichimoku roughly translates to “one glance” since it is meant to be a quick way to see how the price is behaving on a chart
Its full name, Ichimoku Kinko Hyo means”equilibrium chart at a glance”.
Ichimoku Kinko Hyo was developed by Goichi Hosoda and released in 1968, although the chart didn’t gain popularity in the West until the 1990s.
Ichimoku Kinko Hyo is composed of five lines.
- Tenkan-sen averages the highest high and lowest low and is calculated over a fairly short period of time (seven to nine periods.)
- Kijun-sen uses the same equation but is calculated over twenty-two periods.
- Chikou Span plots the current closing price a full twenty-two periods behind.
- Senkou Span A averages Tenkan-sen and Kijun-sen, and is plotted twenty-six periods ahead.
- Senkou Span B averages the highest high and lowest low over the last fifty-six periods, and is plotted twenty-two periods ahead.
- Kumo is the space between Senkou Spans A and B.
Traders use Ichimoku Kinko Hyo to generate a variety of signals for market behavior, based on the interaction of the chart’s lines with the Kumo.
Because of the comprehensiveness of the chart, traders consider it to be a very powerful tool for technical analysis.
However, foreign exchange traders should be aware of the chart’s drawbacks in forex markets: since forex markets never close, no close prices are generated, and it’s unclear how the Chikou Span should be plotted.
Good judgment should therefore be used both in choosing the time periods from which to generate the chart and in deciding which price should be chosen as a forex market’s close price.