The term Ichimoku Kinko Hyo sounds rather unusual for a layperson, since trading is mainly related to English terms. But you shouldn't be wrong. It is not a single indicator, but an ingenious trading system that was first publicly published in 1968. However, it was developed much earlier by Goichi Hosoda.
Basics of Ichimoku Kinko Hyo
"Everything at a glance": The translated name makes it clear what the comprehensive indicator and trading system is all about goes. This is to provide a technical overview of the market. If you look at the chart, it does not look so clear at first glance.
The Ichimoku Kinko Hyo basically consists of several individual indicators. In certain course phases, such as in sideways phases, the course itself is hardly recognizable. So where should the overview come from? This only comes when you make clear what the individual indicators are and what they say. The Ichimoku Kinko Hyo consists of five individual indicators:
- Kijun Sen (blue)
- Tenkan Sen (red)
- Chikou Span (green)
- Senkou Span A (brown)
- Senkou Span B (purple)
In contrast to many other indicators, the Ichimoku Kinko Hyo is a forward-looking indicator that is based on sliding Averages works. In addition to the projection into the future, it should also provide signals for boarding and alighting and show the strength of these signals.
The Kijun-Sen line is also known as the "standard line". It is the average of the high and low prices based on a period of 26 days or time units, depending on which chart was selected.
The Tenkan-Sen line or the so-called "rotating line" is also one Average of the lowest and highest prices, but based on a shorter period of nine days or time units. Both lines are therefore not moving averages, but average lines.
The Chikou Span is also referred to as a "delayed line". This is because it represents a 26-day backward projection.
The Senkou-Span lines are projected averages. The Senkou-Span line A is the mean of the standard and the rotating line, i.e. the Kijun Sen and Tenkan Sen. The projection is made 26 days forward. The Senkou-Span line B is the average of the low and high prices, based on a period of 52 days and also projected forward by 26 days.
Interpretation of the Ichimoku Kinko Hyo
With so many indicators, interpretation is imperative, otherwise the whole thing doesn't make much sense. The developer suggests the following interpretations:
- The first two lines (Kijun Sen and Tenkan Sen) are considered signal lines. If the Kijun-Sen line crosses the Tenkan-Sen line upwards, it serves as a buy signal and vice versa.
- The two leading lines (Senkou Span A and Senkou Span B) form the so-called Kumo cloud. The Kumo cloud represents resistance and support on the one hand and on the other hand it is crucial for defining the trend. If the price is above the cloud, the price is in an upward trend; if the price is below, it is in a downward trend.
- The delayed line (Chikou Span) is also used in the trend definition. Due to the back projection, the line shows the change of course compared to 26 days before. So if the line is above the course, it has risen and vice versa. The Chikou-Span line also acts as a filter for the strength of a signal. If an outbreak from the Kumo cloud is not confirmed by the Chikou-Span line, the signal is considered to be relatively weak.
According to the interpretations, we therefore need the following conditions for a strong signal:
- The Kijun-Sen line crosses the Tenkan-Sen line.
- There was an eruption from the Kumo cloud.
- The Chikou-Span line confirmed the breakout.
The upper chart shows a strong buy signal because (1) the price is above the Kumo cloud, (2) the Chikou-Span line shows strength and ( 3) The Kijun-Sen line crosses the Tenkan-Sen line from bottom to top.
Best iq Option Strategy 2018 - 100% Wining Ichimoku Cloud Indicator Binary Option
Conclusion - Ichimoku Kinko Hyo as a whole trading system
If you look at the individual indicators and the Knowing interpretations of Ichimoku, the whole thing gets a certain overview. What is also striking is the fact that - although the Ichimoku works with projections - trends are not recognized very early due to the many confirmations that must be available for signaling. This is only one, but still clear weakness of the indicator, which is common for trend-following indicators.
Nevertheless, the Ichimoku Kinko Hyo is a trading system that is particularly suitable for long-term trading. In the next post we will see whether it can also prove itself in short-term trading.