Ichimoku or Ichimoku Kinko Hyo (IKH) is an all-in-one indicator used by traders.
It provides information on trend direction, future price momentum and determines future areas of support and resistance.
The Ichimoku indicator can be a powerful trading tool for traders if used correctly.
For some traders the indicator might appear overwhelming to look at, this is because of all the different lines and information displayed.
Breaking Down Ichimoku Kinko Hyo
The Ichimoku indicator is made up of many parts and might seem confusing when you first look at it on a chart.
In order to use the indicator correctly you first need to understand what all the parts mean.
Ichimoku can be broken down into conversion and base lines and the cloud or kumo.
The Conversion and Base lines
Conversion and Base lines look similar to moving averages on a chart, However they are different.
Below we have listed what each line does.
Kijun Sen is a standard/base line and it shows the middle range of the highest highs and the lowest lows. The average middle range is done for the past 26 periods ( candles).
Tenkan Sen is the turning line and it shows the middle range of the highest highs and the lowest lows for the past nine periods.
Chikou Span is the lagging line. It is today’s closing price plotted 26 periods behind.
The Ichimoku Cloud
The Ichimoku Cloud is made up of two lines, lower and upper.
It is the space in between the two lines that is called the cloud.
The cloud area is often shaded either green or red, in our chart the colors used are orange and purple.
Up Kumo is the area of the cloud that represents a bullish momentum, it is usually colored green.
Down Kumo is the area of the cloud that represents a bearish momentum, it is usually colored red.
Senkou Span A is the middle boundary between the Tenkan Sen and Kijun Sen lines and is plotted 26 periods ahead.
Senkou Span B is the middle line between the 52 period highest high and the lowest low and it is plotted 26 periods ahead.
Using Ichimoku In Forex
So now you know what each line is named and how they are plotted lets looks at what they mean and how to use them.
How To Use Conversion And Base Lines
Conversion and Base lines have two main functions:
- They act as support and resistance during trends.
- They provide momentum information.
Tenkan Sen & Kijun Sen Lines
If the Tenkan-sen line moves above or below the Kijun-Sen line it indicates the market is trending.
When the Tenkan-sen line moves above the Kijun-Sen then this would signal to buy.
When the Tenkan-sen line moves below the Kijun-Sen then this would signal to sell.
If the price is higher than the Kijun-Sen line it could indicate that the price will continue to climb higher.
If the price is below the Kijun-Sen line it could indicate that the price will continue to fall lower.
The trend is considered to be upward when the Chikou Span line crosses the price in the bottom-up direction.
If the Chikou Span crosses the price from the top-down direction then it is a downward direction.
How To Use Ichimoku Cloud
The Ichimoku Cloud is similar to the Conversion and Base lines.
As with Conversion and Base lines the Cloud also provides 2 main functions;
- Acting as support and resistance
- Providing trend direction and momentum information
The big difference between the Cloud and Conversion and Base lines is that the cloud covers a larger 52 period.
This means that the cloud moves slower than the Conversion and Base lines.
When the price is above the Cloud it confirms an uptrend and when the price is below it is a downtrend.
If the price is within the space of the Cloud then this signals a no trading zone.