Ichimoku Kinko Hyo
Ichimoku Kinko Hyo is a Japanese phrase that translates to "equilibrium chart at a glance". It is used to define market trends, levels of support and resistance, and to generate signals of purchase and sale. More generally, it is used to illustrate where prices are likely to go and when to trade.
Ichimoku Kinko Hyo was developed by Goichi Hosoda (Ichimoku Sanjin).
Components (and Formula)
The Ichimoku Kinko Hyo chart consists of five lines and a cloud. It accepts three configurable time intervals (x,y,z) as parameters and is calculated as follows:
- Tenkan-Sen (Conversion Line ) = (Highest High + Lowest Low) / 2, for the past x periods
- Kijun-Sen (Base Line) = (Highest High + Lowest Low) / 2, for the past y periods
- Chikou Span (Lagging Span) = Today's closing price plotted y periods behind
- Senkou Span A = (Tenkan-Sen + Kijun-Sen) / 2, plotted y periods ahead
- Senkou Span B = (Highest High + Lowest Low) / 2, for the past z periods, plotted y periods ahead
The cloud, known as the Kumo, is the space between Senkou Span A and Senkou Span B.
- The Tenkan-sen is used as an indicator of a market trend. If this line increases or decreases, the trend exists. When it goes horizontally, the forex market has come into the channel.
- The Kijun-sen is used as an indicator of movement in the market. If the price is higher than the Kijun-sen, the price will most likely rise. When the price intersects this line, changes in the trend are likely to occur.
- A buy signal is generated when the Tenkan-sen intersects the Kijun-sen from below (Strong if above Kumo, normal if within Kumo, weak if below Kumo).
- A sell signal is generated when the Tenkan-sen intersects the Kijun-sen from above (Strong if below Kumo, normal if within Kumo, weak if above Kumo).
- The Chikou span can be used to determine the strength of a buy or sell signal. Strength is shown to be with the sellers if the Chikou Span is below the current price. Strength is shown to be with the buyers when the opposite is true.
- Support and resistance levels are represented by the Kumo cloud. If the price is entering the Kumo from below, then the price is at a resistance level. If the price is falling into the Kumo, then there is a support level.
- Trends are determined by looking at where the current price is in relation to the Kumo. If the price is above the Kumo, the trend is said to be up. And if the price is below the Kumo, the prevailing trend is said to be down.
- Volatility is determined by looking at the thickness of the Kumo Cloud. A thin Kumo implies the current volatility is low, while a thick Kumo implies strong support or resistance and increased volatility.
- Right-click on the Kumo cloud of the Ichimoku Kinko Hyo to modify the colors of each of the five lines or the cloud.
- You can choose to make the cloud color non-transparent, which may improve performance of the indicator on some systems. Since the non-transparent cloud can sometimes block the chart, you also have the option of moving the kumo cloud into the background.