Kinko Hyo Ichimoku?
Yes, you are still in the right place, not a Japanese pop or anime website.
No, “Ichimoku Kinko Hyo” does not mean “May the pips be with you,” although it can help you get those pips.
Ichimoku Kinko Hyo (IKH) is a technical indicator that predicts future price movement and regions of support and resistance.
That’s three in one for you! Also, keep in mind that this indicator is primarily used on JPY pairs.
To add to your Japanese vocabulary, ichimoku means “a glimpse,” kinko means “equilibrium,” and hyo means “chart.”
Putting it all together, the word ichimoku kinko hyo means “a glance at an equilibrium chart.”
What does all of this mean?
A chart could help to clarify things.
That didn’t help matters. With a few more lines, this will look like a seismograph.
Before you dismiss this as nonsense, let’s break down the components of Ichimoku Kinko Hyo so you can grasp it.
But, before we get there, there are a few things you should know about this indicator:
- Ichimoku can be used in all time frames for any tradeable asset. (It was originally used to trade rice!)
- Ichimoku can be used in both rising and falling markets.
So, when should you NOT use Ichimoku?
When there is no clear trend.
When the market is trading sideways or choppy, it is said to be trendless.
When the price oscillates on either side of the cloud, you know it’s trendless.
When the price oscillates on either side of the cloud, it is trendless.
Got it? Excellent.
Let’s try to figure out what each of the lines is for.
Kijun Sen (blue line): Also called the standard line or baseline, this is calculated by averaging the highest high and the lowest low for the past 26 periods.
Tenkan Sen (red line): This is also known as the turning line and is derived by averaging the highest high and the lowest low for the past nine periods.
Chikou Span (green line): This is called the lagging line. It is today’s closing price plotted 26 periods behind.
Senkou Span (orange lines): The first Senkou line is calculated by averaging the Tenkan Sen and the Kijun Sen and plotting 26 periods ahead.
Got it? Well, it’s not really necessary for you to memorize how each of the lines is computed.
What’s more important is for you to know how to interpret these fancy lines.
How to Trade Using Ichimoku Kinko Hyo
First, let’s look at the Senkou span.
If the price is above the Senkou span, the top line is the first support level, and the bottom line is the second support level.
If the price is below the Senkou span, the bottom line serves as the first resistance level, while the top line serves as the second.
In the meanwhile, the Kijun Sen serves as a predictor of future price movement.
If the price is over the blue line, it could continue to rise.
If the price falls below the blue line, it may continue to fall.
The Tenkan Sen is a market trend indicator.
If the red line moves up or down, it means the market is trending.
Its horizontal movement indicates that the market is ranging.
Finally, a buy signal is generated when the Chikou Span or the green line crosses the price in a bottom-up direction.
A sell signal is generated when the green line crosses the price from the top down.
Here’s another look at that line-filled chart, this time with trade signals:
At first glance, it appears difficult, but this baby has support and resistance levels, crossovers, oscillators, and trend indicators all in one! Isn’t it amazing?
Ichimoku can be utilized in any market and timeframe as a trend tracking indicator.
Regardless of the market, Ichimoku promotes trading in the direction of the trend rather than against it. Ichimoku can help you avoid entering the wrong side of the market by observing trends.
We’ve previously gone over a smorgasbord of signs. Let’s see how we can put everything you’ve just learnt together.