What Is the Ichimoku Kinko Hyo?
The IchimokuKinko Hyo, or Ichimoku for short, is atechnical indicator that is used to gauge momentum along with future areas of support and resistance. Theall-in-one technical indicatoris comprised of five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B and chikou span.
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Understanding Ichimoku Kinko Hyo
The IchimokuKinkoHyo indicator was originally developed by a Japanese newspaper writer to combine various technical strategies into a single indicator that could be easily implemented and interpreted. In Japanese, "ichimoku" translates to "one look,"meaning traders only have to take one look at the chart to determine momentum, support, and resistance.
Ichimoku may look very complicated to novice traders that haven't seen it before, butthe complexity quickly disappears with anunderstanding of what the various lines mean and why they are used.
The Ichimoku indicator is best used in conjunction with other forms of technical analysis despite its goal of being an all-in-one indicator.
IchimokuKinkoHyo Interpretation
There are five key components to the Ichimokuindicator:
- Tenkan-sen: The tenkan-sen, or conversion line,is calculated by adding the highest high and the lowest low over the past nine periods and then dividing the result by two. The resulting line represents a key support and resistance level, as well as a signal line for reversals.
- Kijun-sen: The kijun-sen, or base line, is calculated by adding the highest high and the lowest low over thepast 26 periods and dividing the result by two. The resulting line represents a key support and resistance level, a confirmation of a trend change, and can be used as a trailing stop-loss point.
- Senkou Span A: The senkou span A, or leading span A, is calculated by adding thetenkan-sen and thekijun-sen, dividing the result by two, and then plotting the result26 periods ahead. The resulting line forms one edge of the kumo - or cloud - that's used to identify future areas of support and resistance.
- Senkou Span B: The senkou span B, or leading span B, is calculated by adding the highest high and thelowest low over the past 52 periods, dividing it by two, and then plotting the result 26 periods ahead.The resulting line forms the other edge of the kumo that's used to identify future areas of support and resistance.
- Chikou Span: The chikouspan, or lagging span, is the current period's closing price plotted 26 days back on the chart. This line is used to show possible areas of support and resistance.
Example of anIchimokuKinkoHyo Chart
The following is an example of an Ichimoku indicator plotted on a chart:
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In this example, the Ichimokucloudis the area that's shaded in orange, which represents a key area of support and resistance. The chart shows that the SPDR S&P 500 ETF remains in a bullish uptrend since the current price is trading above the cloud. If the price were to enter the cloud, traders would watch for a potential reversal of the trend.
