What it is and how to use it
What is it?
The Ichimoku Kinko Hyo, commonly known as Ichimoku, is a comprehensive indicator that provides information about support and resistance levels, trend direction, momentum, and potential reversal points. It consists of five main components: Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span. The so-called "Ichimoku cloud" is formed by Senkou Span A and Senkou Span B, and gives a visual representation of the current and future support and resistance levels.
Who made it?
The Ichimoku Kinko Hyo was developed by Japanese journalist Goichi Hosoda in the late 1930s and was published in his book in 1969.
How is it calculated?
The formulas for the five Ichimoku components are:
Tenkan-sen (Conversion Line): (Highest High + Lowest Low) / 2 for the past 9 periods
Kijun-sen (Base Line): (Highest High + Lowest Low) / 2 for the past 26 periods
Senkou Span A (Leading Span A): (Tenkan-sen + Kijun-sen) / 2, plotted 26 periods ahead
Senkou Span B (Leading Span B): (Highest High + Lowest Low) / 2 for the past 52 periods, plotted 26 periods ahead
Chikou Span (Lagging Span): Closing price plotted 26 periods back
Code (ProRealTime)
How do you use it?
The Ichimoku Kinko Hyo can be used in several ways:
Trend Identification:
The Tenkan-sen (Conversion Line) and Kijun-sen (Base Line) are used to identify the trend. When the Tenkan-sen is above the Kijun-sen, it indicates an uptrend, and below it indicates a downtrend. The price's position relative to the cloud (Senkou Span A and Senkou Span B) also helps identify the trend. If the price is above the cloud, the market is in an uptrend; below, it's in a downtrend. A flat Kijun-sen or Tenkan-sen often indicates a consolidation phase.
Support and Resistance:
The cloud, formed by Senkou Span A and Senkou Span B, acts as dynamic support and resistance, and a break through the cloud can signal a change in trend. The Kijun-sen and Tenkan-sen also serve as support and resistance levels, with the Kijun-sen providing more significant levels due to its longer lookback period.
Signal Generation:
Buy signals are generated when the Tenkan-sen crosses above the Kijun-sen (a bullish crossover), and sell signals are generated when the Tenkan-sen crosses below the Kijun-sen (a bearish crossover).
Momentum Confirmation:
The Chikou Span, plotted 26 periods back, provides visual confirmation of momentum and can be used to validate signals generated by the Tenkan-sen and Kijun-sen crossovers. If the Chikou Span is above the price, it confirms bullish momentum, if it is below, it confirms bearish momentum.
FAQ
Q: What are the best settings for Ichimoku?
A: The default settings for Ichimoku are 9, 26, and 52, representing different time periods for the indicator's various components. These settings can be adjusted based on your trading strategy and the asset you're analyzing.
Q: How can Ichimoku be used to improve trading?
A: Ichimoku provides a comprehensive view of the market by combining multiple indicators into one. It helps you identify trends, support and resistance levels, and potential entry and exit points.
Q: What are the strengths and weaknesses of Ichimoku?
A: Ichimoku is great for providing a holistic view of the market, but it can be complex and may take some time to master. It's best used in trending markets.
Strategies using Ichimoku
None so far.
Comments