- Type of Indicator: Trend-following
- Creator: Goichi Hosoda
- When Created: 1930s
- First Mentioned In: Ichimoku Kinko Hyo: The Charting Technique for Trading Success
What Is The Ichimoku Kinko Hyo?
The Ichimoku Kinko Hyo, also known as the Ichimoku Cloud, is a complex indicator that includes several components.
The most well-known component is the Kumo, or cloud, which represents potential support and resistance levels.
The cloud is formed by plotting two lines, the Senkou Span A and the Senkou Span B. The two Spans are based on the average of the Tenkan-sen and Kijun-sen lines.
Tenkan-sen (Conversion Line)
A short-term moving average that measures the average price over the past 9 periods.
Kijun-sen (Base Line)
A longer-term moving average that measures the average price over the past 26 periods.
Senkou Span A (Leading Span A)
The average of the Conversion Line and the Base Line plotted 26 periods ahead.
Senkou Span B (Leading Span B)
The average of the highest high and the lowest low over the past 52 periods plotted 26 periods ahead to create a “cloud” area.
Chikou Span (Lagging Span)
The closing price plotted 26 periods behind.
How Do You Read The Ichimoku?
The Ichimoku Kinko Hyo provides traders with a comprehensive view of potential price action. It can help traders identify support and resistance levels, trend direction, momentum, and volatility.
Traders can use the Ichimoku Kinko Hyo to identify potential entry and exit points, as well as to manage risk.
How Does The Ichimoku Cloud Work?
The Ichimoku Cloud is based on the concept of multiple time frame analysis. This system involves analyzing the market from multiple time frames to identify potential trends and reversals.
The indicator uses several components, including moving averages, to generate a comprehensive view of potential price action.
How Is The Ichimoku Calculated?
The Ichimoku includes several components, each of which is calculated using different formulas.
The Tenkan-sen line is calculated by taking the average of the highest high and lowest low over the past nine periods.
The Kijun-sen line is calculated by taking the average of the highest high and lowest low over the past 26 periods.
The Senkou Span A is calculated by taking the average of the Tenkan-sen and Kijun-sen lines and plotting it 26 periods ahead.
The Senkou Span B is calculated by taking the average of the highest high and lowest low over the past 52 periods and plotting it 26 periods ahead.
The Chikou Span is the current price, plotted 26 periods behind.
How Do You Use The Ichimoku Kinko Hyo?
Entry & exit points: Traders can use the Ichimoku Kinko Hyo to identify potential entry and exit points. One common strategy involves waiting for the price to break above or below the cloud, indicating a potential trend reversal.
Support & resistance levels: Traders can also use the Tenkan-sen and Kijun-sen lines to identify potential support and resistance levels.
Buy & sell signals: When the Tenkan-sen line crosses above the Kijun-sen line, it may indicate a potential uptrend, while a cross below may indicate a potential downtrend.
Additional Trading & Risk Management Tips
It’s important to note that the Ichimoku Kinko Hyo is a complex indicator that requires practice and experience to use effectively.
It’s also important to backtest and practice using the Ichimoku Kinko Hyo on historical data to better understand its strengths and weaknesses and to develop a solid trading strategy.
Additionally, traders should always use proper risk management techniques, such as setting stop loss orders and monitoring market volatility.
Practice using the RSI using a TradingView account to backtest performance.