Ichimoku Kinko Hyo, or Ichimoku for short, is a technical
analysis method that builds on candlestick
charting to improve the accuracy of forecast price movements. It was developed
by Goichi Hosoda, a Japanese journalist, and published in the late 1960s after
30 years of working on it. The term Ichimoku Kinko Hyo translates to „one
look equilibrium chart,“ which underscores the system’s ability to provide
a quick understanding of market sentiment, momentum, and strength at a glance.

Core Components

The Ichimoku chart is composed of five main lines, each
providing its insights into market trends:

1. Tenkan-sen
   (Conversion Line): This line is calculated as the
   average of the highest high and the lowest low over the last 9 periods. It
   signals the market trend and is faster moving than the Kijun-sen.
2. Kijun-sen
   (Base Line): Determined by averaging the
   highest high and the lowest low over the past 26 periods, this line also
   indicates trend direction but reacts slower than Tenkan-sen.
3. Senkou
   Span A (Leading Span A): This is the
   midpoint between the Tenkan-sen and Kijun-sen, plotted 26 periods ahead.
4. Senkou
   Span B (Leading Span B): Calculated
   as the average of the highest high and the lowest low over the past 52
   periods, then plotted 26 periods ahead.
5. Chikou
   Span (Lagging Span): This line represents the
   closing price plotted 26 periods behind.

These components combine to form what is known as the
„cloud,“ made up of Senkou Span A and B, which provides support and
resistance levels and can indicate potential trend reversals.

Reading the Ichimoku Chart

To interpret an Ichimoku chart, traders consider the
interaction between these elements:

• When the price is above the
  cloud, formed by Senkou Span A and Senkou Span B, it suggests an uptrend.
• Conversely, if the price is
  below the cloud, it indicates a downtrend.
• If the Tenkan-sen crosses above
  the Kijun-sen, it can be considered a bullish signal.
• A bearish signal is given when
  the Tenkan-sen crosses below the Kijun-sen.
• The Chikou Span’s position
  relative to the price can indicate bullishness if above the price, or
  bearishness if below.

Tips for Using Ichimoku Charts

1. Wait
   for Confirmation: Before acting on signals, wait
   for the price to move above or below the cloud for confirmation, as the
   cloud itself acts as a support or resistance zone.
2. Use
   Multiple Timeframes: Analyzing charts with
   different time frames can provide a more comprehensive view since signals
   might vary across short-term and long-term charts.
3. Consider
   the Cloud Thickness: A thicker cloud could mean
   stronger support or resistance, suggesting a potent trend when the price
   breaks through it.
4. Chikou
   Span Confirmation: Always check where the Chikou
   Span lies in relation to the price action for additional signs of the
   market’s direction.
5. Combine
   with Other Indicators: While the
   Ichimoku chart provides extensive information, corroborating its signals
   with other indicators can enhance decision-making.

By integrating all these aspects, the Ichimoku system offers
a dynamic tool for traders seeking to analyze markets with a holistic approach.
Its multifaceted nature allows for both rapid assessment and deeper analysis,
making it an indispensable instrument in the arsenal of many technical traders.

This article was written by FL Contributors at www.forexlive.com.