Are you tired of staring at boring old charts and not knowing which way the market is headed? Well, have no fear, because the Ichimoku Kinko Hyo indicator is here to save the day. This strange set of candlesticks may seem like a hot mess at first glance, but trust me, it’s packed with valuable information that will make you the envy of all your trading buddies. So, sit back, relax, and let the Ichimoku Kinko Hyo indicator guide you to profits you never thought possible!
Japanese candlesticks have a long history of use in the world of technical analysis. The Ichimoku Kinko Hyo indicator is one such valuable tool. Developed by the Japanese journalist Goichi Hosoda in the 1930s, the Ichimoku Kinko Hyo indicator, also known as the Ichimoku Cloud, is a technical analysis tool used to identify trends and potential buy and sell signals in the Forex market. This article explains the basics of the Ichimoku Kinko Hyo indicator, its uses, and strategies for trading Forex.
Ichimoku Kinko Hyo Indicator In Forex Trading: Key Takeaways There are several benefits of using the Ichimoku Kinko Hyo indicator in Forex trading, including: 1. Identifying trends: The cloud, formed by the Senkou Span A and Senkou Span B lines, can be used to quickly identify the current trend of the market. 2. Support and resistance levels: The cloud can also be used to identify potential areas of support and resistance, as price tends to find support near the bottom of the cloud and resistance near the top. 3. Multiple signals: The indicator provides multiple signals, such as the Tenkan-sen and Kijun-sen lines, which can be used to generate buy and sell signals. 4. Confirmation of trends: The Chikou Span line can be used as a confirmation of a trend, as it is plotted 26 periods behind the current period, which gives insight into the current trend's momentum. 5. All-in-one indicator: The Ichimoku Cloud provides a comprehensive view of the market, with multiple components that work together to provide a comprehensive analysis of the market. Easy to interpret: The Ichimoku Kinko Hyo indicator is easy to interpret, even for beginners, as it provides clear signals and levels that can be easily understood.
What Is the Ichimoku Kinko Hyo Indicator?
The Ichimoku Kinko Hyo indicator, also known as the “Ichimoku Cloud,” is a remarkably effective manual trading indicator used to identify support levels and resistances, determine trend direction, calculate momentum, and spot potential buy and sell signals in trading.
Developed in Japan in the late 1930s, by Japanese journalist Goichi Hosoda, the Ichimoku indicator is composed of several different elements, including the cloud, the conversion line, the baseline, and the lagging span, each of which is intended to provide insight into different aspects of price action.
The goal of this indicator was to combine multiple strategies into one, the easy-to-read indicator on a chart. The name “Ichimoku Kinko Hyo” translates to “one-look equilibrium chart” and it’s designed to help traders identify high-quality trading opportunities, determine price momentum, and identify key levels of support and resistance.
The Ichimoku Kinko Hyo Indicator is a versatile trading system that can be applied to any market and any time frame. It is designed to provide traders with a comprehensive understanding of the markets and helps to identify a wide range of high-probability trading opportunities quickly. By using this indicator, traders can quickly determine if a trade is in line with the current trend or if it would be better to wait for a more favorable market condition in a specific pair.
Using Ichimoku, you can see both uptrends and downtrends. However, this indicator should not be used in the absence of a clear trend. Furthermore, this indicator is most effective on JPY pairs.
5 Basic Components of Ichimoku Kinko Hyo Indicator
The Ichimoku Kinko Hyo indicator consists of various graphical elements plotted on the same chart, each of which provides insight into different aspects of price action. Identifying all of these components will allow a trader to better understand where resistance and support lie. It also allows traders to determine whether the market is trending or consolidating.
Here are the main components that constitute the Ichimoku indicator:
The Kumo, or Cloud
The Kumo or Cloud is formed by two lines: the Senkou Span A (SSA) and the Senkou Span B (SSB).
Variations in the Cloud can be interpreted in the following ways:
- The trend is bearish when the SSB is higher than the SSA
- The trend is bullish when the SSA is higher than the SSB
- When the price oscillates in the cloud, we’re in a lateral range or indecision zone
- The market is less volatile if the cloud is thin
- The market is more volatile if the cloud is wide
The cloud acts as a form of support and resistance and helps to indicate the direction of the trend.
The Tenkan, or Conversion Line
Tenkan Sen line usually appears red in color and represents the moving average of the past nine periods.
Tenkan Sen = (9-period high + 9-period low)/2
Variations in the Tenkan can be interpreted in the following ways:
- If Tenkan rises, then the highs and lows of the last 9 candles are rising.
- If Tenkan falls, then the highs and lows of the last 9 candles fall.
- The Tenkan line remains flat if the market stops rising or falling.
- Among the Ichimoku Kinko Hyo lines, Tenkan Sen is the most reactive. In contrast to Chikou, this average does not shift to the right or left.
The Tenkan Sen is a short-term moving average and is used to generate buy and sell signals when it crosses the baseline. Furthermore, Tenkan Sen indicates price volatility (since it’s close to the price).
The Kijun Sen, or Base Line
The Kijun Sen usually appears blue in color and is calculated by averaging the midpoints of the past 26 time periods.
Kijun Sen = (26-period high + 26-period low)/2
Variations in the Kijun Sen can be interpreted in the following ways:
- An increasing Kijun indicates that the last 26 candles’ highs and lows are increasing.
- A falling Kijun indicates there has been a decrease in the highs and lows of the previous 26 candles.
- The Kijun line remains flat if the market does not rise or fall.
The baseline is a long-term moving average and is used to generate buy and sell signals when it crosses the conversion line.
The Chikou, or Lagging Span
Chikou Span looks orange in color and represents the price movement for the previous 26 periods. It is possible to gain insight into past price movements and confirm trends by plotting the Chikou line 26 periods behind the current price action.
Senkou Span A or Leading Span A
Usually yellow in color, Senkou Span A shows the midpoint between the Tenkan Sen and the Kijun Sen. It is calculated by averaging the highest high and lowest low of the past 52 periods, and it is plotted 26 periods ahead of the current price action.
Senkou Span A = (Tenkan Sen + Kijun Sen)/2
Senkou Span B or Leading Span B
Usually blue in color, Senkou Span B is the midpoint between the highest high and the lowest low over the past 52 periods, and it is plotted 26 periods ahead of the current price action.
Senkou Span B = (52-period high + 52-period low)/2
Together, these elements provide traders with a comprehensive view of price action, enabling them to identify trends, potential buy and sell signals, and key levels of support and resistance. It’s important to note that the Ichimoku indicator is best used in conjunction with other technical analysis tools and should not be relied upon solely to make trading decisions.
How to Read the Ichimoku Kinko Hyo Indicator
Looking at the Ichimoku Cloud indicator is a good way to begin evaluating the trading market conditions.
- Bullish trends are characterized by green clouds, while bearish trends are characterized by red clouds.
- A neutral market stance is indicated by prices within the cloud; prices above the cloud indicate bullish sentiment; prices below the cloud indicate bearish sentiment.
- The size of the cloud matters as well; a narrow cloud implies a weaker trend, while a larger cloud indicates a stronger trend.
- Basically, moving averages determine cloud borders. Thus, it is important to look for crossovers between the Senkou Span lines (or simply changes in the cloud color), which indicate a trend reversal.
- Depending on where the price lies, the Senkou Span lines can also act as dynamic support and resistance lines.
- Kijun Sen and Tenkan Sen lines are observed in relation to the price for faster and more frequent trading signals.
- The Kijun Sen is a price magnet and an indicator of future price action. A market price above Kijun Sen usually indicates that the market may continue to rise, while a price below Kijun Sen indicates that the market may continue to fall.
- When the price is above a Kijun Sen line and above the cloud, that’s a strong bullish signal. When the price is below a Kijun Sen line and below the cloud, that’s a strong bearish signal.
- Tenkan Sen lines are shorter-period moving averages that are more responsive to trend changes and reflect recent price extremes. When the slope moves sideways, it indicates a range market.
- The Tenkan Sen is essentially a signal line; a buy signal occurs when the Tenkan Sen moves above the Kijun Sen, whereas a sell signal occurs when the Tenkan Sen moves below the Kijun Sen.
- Chikou Span is also interesting due to its backward extension, mainly because of the current closure price. In order to understand the current price action, this information is very important.
- The Chikou Span is useful for confirming support and resistance levels, but it’s the crosses with asset prices that provide tradeable signals. The Chikou Span signals a buy when it crosses the price from below, while a sell signal is generated when it crosses the price from above.
- The cross between the Chikou Span and the Kijun Sen and Tenkan Sen can also be used to confirm buy orders and sell orders.
It’s important to remember that the Ichimoku Kinko Hyo Indicator is a lagging indicator, so it works best in conjunction with other indicators or strategies to confirm trends and potential trades.
How to Use Ichimoku Indicator in Forex Trading
The Ichimoku Kinko Hyo indicator is a technical indicator that can be used to identify trends and potential areas of support and resistance in Forex trading. Here are a few steps on how to use the Ichimoku indicator in Forex trading:
- Install the Ichimoku Kinko Hyo indicator on your trading platform: Most trading platforms, such as MetaTrader 4 or 5, provide the option to add the Ichimoku Kinko Hyo indicator to your charts. Take advantage of AximTrade Trading App for real-time MT4 alerts right at your fingertips.
- Setting up the indicator: Once installed, you can customize the indicator’s settings to match your preference. The default settings are 9,26,52, which are the periods used for the Tenkan-sen, Kijun-sen, and Senkou Span B lines.
- Identify the trend: Look at the position of the Tenkan-sen and Kijun-sen lines. If the Tenkan-sen line is above the Kijun-sen line, it indicates an uptrend, while if the Tenkan-sen line is below the Kijun-sen line, it indicates a downtrend.
- Look for support and resistance: The Senkou Span A and Senkou Span B lines can act as potential areas of support and resistance. If the price is above the cloud, it can indicate a bullish market, while if the price is below the cloud, it can indicate a bearish market.
- Check for Bullish/Bearish reversal: The Chikou Span can be used to identify potential bullish or bearish reversals. If the current price is above the Chikou Span, it can indicate a bullish reversal, while if the current price is below the Chikou Span, it can indicate a bearish reversal.
- Decision-making: Use the information provided by the Ichimoku Kinko Hyo indicator to make trading decisions. For example, if the trend is bullish, you may consider buying, if the trend is bearish, you may consider selling.
The indicator works best when used in conjunction with other strategies or indicators when confirming trends and trade potentials. Risk management techniques and stop-loss orders can help minimize losses as well.
Advantages of Using Ichimoku Indicator in Forex Trading
The Ichimoku Kinko Hyo indicator, also known as the Ichimoku Cloud, can provide several advantages when used in Forex trading. Here are a few of the key advantages of using the Ichimoku Cloud:
1. All-in-One Indicator
The Ichimoku Kinko Hyo indicator is often referred to as an “all-in-one” indicator because it provides multiple signals and indicators in one chart. It includes several components, such as the Tenkan-sen line, which is a short-term indicator of the current trend, the Kijun-sen line, which is a medium-term indicator of the current trend, the Chikou Span, which is used to identify potential bullish or bearish reversals, the Senkou Span A, which is used as a potential area of support or resistance, and the Senkou Span B, which is also used as a potential area of support or resistance.
By providing multiple signals and indicators in one chart, the Ichimoku Cloud can help traders make more informed decisions by eliminating the need to use multiple indicators to analyze the market.
2. Helps Identifying Potential Trends
The Ichimoku Kinko Hyo indicator can also be used to identify trends in Forex trading by looking at the position of the Tenkan-sen and Kijun-sen lines. The Tenkan-sen line is a short-term indicator of the current trend and is calculated as the average of the highest high and lowest low over the past 9 periods. The Kijun-sen line, on the other hand, is a medium-term indicator of the current trend and is calculated as the average of the highest high and lowest low over the past 26 periods.
When the Tenkan-sen line is above the Kijun-sen line, it indicates an uptrend, while if the Tenkan-sen line is below the Kijun-sen line, it indicates a downtrend. A crossover between the Tenkan-sen and Kijun-sen lines can also indicate a potential change in trend.
3. Detects Support and Resistance levels
The Ichimoku Kinko Hyo indicator, also known as the Ichimoku Cloud, can be used to identify potential areas of support and resistance in Forex trading by looking at the Senkou Span A and Senkou Span B lines.
The Senkou Span A is the midpoint of the Tenkan-sen and Kijun-sen lines, plotted 26 periods ahead of the current price. It is used as a potential area of support or resistance because it acts as a leading indicator of the cloud. When the price is above the Senkou Span A, it can indicate that the market is in an uptrend and the Senkou Span A acts as a support level. When the price is below the Senkou Span A, it can indicate that the market is in a downtrend and the Senkou Span A acts as a resistance level.
The Senkou Span B is the midpoint of the highest high and lowest low over the past 52 periods, plotted 26 periods ahead of the current price. It is also used as a potential area of support or resistance, similar to the Senkou Span A. When the price is above the Senkou Span B, it can indicate that the market is in an uptrend and the Senkou Span B acts as a support level. When the price is below the Senkou Span B, it can indicate that the market is in a downtrend and the Senkou Span B acts as a resistance level.
4. Identifies Bullish and Bearish Reversals
The Ichimoku Kinko Hyo indicator, also known as the Ichimoku Cloud, can be used to identify potential bullish and bearish reversals by looking at the Chikou Span. The Chikou Span is the current closing price plotted 26 periods behind the current price, and it is used to identify potential bullish or bearish reversals by comparing the current price to the Chikou Span.
When the current price is above the Chikou Span, it can indicate a bullish reversal, as it suggests that the current price is higher than the price 26 periods ago, which could signify that the uptrend is gaining momentum. On the other hand, when the current price is below the Chikou Span, it can indicate a bearish reversal, as it suggests that the current price is lower than the price 26 periods ago, which could signify that the downtrend is gaining momentum.
5. Easy to Interpret
The Ichimoku Cloud is a multi-component indicator, which can make it easier to interpret than other indicators that only provide a single line or signal. This is because it provides multiple signals and indicators, which can help confirm trends and trades.
6. Combining with others
The Ichimoku Cloud is a lagging indicator, which means that it works best in conjunction with other indicators or strategies to confirm trends and potential trades. It can be used in combination with other indicators like RSI, MACD and Fibonacci retracement to provide a more comprehensive and accurate picture of the market.
7. Objectivity
The Ichimoku Cloud is a purely mathematical indicator, and it doesn’t involve any subjective interpretation, which makes it less prone to human emotions and biases, which can help traders make more objective decisions.
Best Ichimoku Trading Strategies Used In Forex
The Ichimoku indicator can be used in many ways to form winning trading strategies since each of the lines and features can be used in different ways. A few of the most useful, popular, and best Ichimoku trading strategies are listed below.
1. Trading Kumo Breakouts Using Kijun-Sen
A Kumo, or cloud, can provide a strong trading signal if the price breaks out of the cloud or through it, as it acts as support or resistance. Knowing when to close a position is essential to successful trading. To exit a winning position following a breakout of the cloud, the trader should watch the asset’s price break through the blue Kijun-Sen line.
2. Plotting support and resistance using Chikou Span
Ichimoku involves time in its calculations, providing traders with an overview of historical, current, and potential future key areas on a chart. Chikou spans are lagging spans plotted back 26 periods, and can be used to plot support or resistance lines to take positions or exit positions.
3. Using Kumo Breakouts for Buy and Sell Signals
When the Kumo or cloud breaks, traders are often able to take action through a powerful buy or sell signal. Traders can ride the trend until the asset’s price once again breaks below the cloud once the asset has broken through the cloud.
4. Using Chikou Span and Tenkan-Sen as Exit Strategy
The direction in which a cloud breakout occurs determines whether it is a strong buy or sell signal. It is therefore possible to lose too much profit by waiting for a break back below the cloud. In order to take profit at peak levels, traders should look for the green Chikou Span line to cross below the red Tenkan-Sen line, indicating that a trend has run its course.
5. Trading Strategy Using Senkou Span Crossovers
Besides some of Ichimoku’s more complex strategies, a straightforward trading strategy can also be derived from a crossover between two Senkou Spans. Price action is considered bullish when Senkou Span A crosses above Senkou Span B. Bearish price action is indicated when Senkou Span A crosses below Senkou Span B. Successful trading strategies can be achieved by buying or selling crossovers.
6. Spotting Reversals With Kumo Twists
Kumo twists make it easy to spot reversals using the cloud. Depending on the bullish or bearish trend, the cloud is red or green, and the cloud grows as the trend increases. In the event of a trend reversal, the cloud thins out, often taking the form of a twist from green to red, or from red to green. In either case, you can open an order to buy or sell based on these signals.
7. Stop loss strategy based on Ichimoku
A stop loss can be placed using the Ichimoku and several support and resistance points can be found. It is possible to use the fast line, the slow line, or the cloud as support or resistance levels. The price can move on to the next level of support or resistance once these supports or resistances are broken. To place a stop-loss order, follow these steps:
- Away from the cloud
- Across the fast line
- Across the slow line
A few pips below the lowest price can also be used in long positions as a stop-loss. Conversely, the stop-loss can be placed a few pips above the highest price in short positions.
8. Ichimoku Strategy for Scalping
Ichimoku scalping is suitable for any type of market and instrument, including:
- Stock indexes like CAC 40 CFD, Dow Jones CFD, S&P 500
- Forex pairs like EUR/USD and GBP/USD
- Gold CFD ‘XAUUSD’
- Cryptocurrencies like BTC and ETH USD
Here’s an article about CFD trading and how it works.
In this Ichimoku strategy, several time frames are analyzed:
- A 15-minute chart for a medium-term and long-term trend, as well as support and resistance levels
- 5 min for a short-term trend
- 1 min to open and close positions.
Since higher time frames are more likely to influence price action in the long run, it is important to analyze the Ichimoku M15 and M5 charts.
9. Ichimoku strategy for Swing Trading
This strategy uses both the Ichimoku indicator and the parabolic SAR indicator.
Buy Signals
The goal of this swing trading strategy is to take advantage of the momentum movement in forex pairs at the beginning of the cycle. The forex market tends to rise when Tenkan-sen crosses over Kijun-sen. Once the parabolic SAR breaks above the price, we can take the position.
- Tenkan-sen should be higher than Kijun-sen
- Tenkan-sen should have an upward slope (Forex Tip)
- The parabolic SAR indicator must reach its highest point
Sell Signals
- Tenkan-sen must be lower than Kijun-sen
- Tenkan-sen should have a descending slope
- The parabolic SAR indicator must reach its lowest point
In the same way, when the Tenkan-sen falls below the Kijun-sen, the Forex market tends to decline, the downward slope of the Tenkan-sen is also an indication to go short. The activation of the parabolic SAR located below the price signifies a break and signals placing a trade.
Best Ichimoku Indicator Combinations for Forex Trading
There are several indicators that can be used in combination with the Ichimoku Kinko Hyo indicator to confirm trends and potential trades. Here are a few examples:
- Moving Averages: Simple or Exponential moving averages can be used in conjunction with the Ichimoku Cloud to confirm trends and potential trades.
- Relative Strength Index (RSI): RSI is a momentum indicator that compares the magnitude of recent gains to recent losses. It can be used in combination with the Ichimoku Cloud to confirm bullish or bearish reversals.
- Fibonacci retracement: Fibonacci retracement can be used to identify potential areas of support and resistance levels. It can be used in combination with the Ichimoku Cloud to confirm potential areas of support and resistance.
- Stochastic Oscillator: A stochastic oscillator can be used in conjunction with the Ichimoku Cloud to confirm bullish or bearish reversals.
- Bollinger Bands: Bollinger Bands are a volatility indicator that can be used in conjunction with the Ichimoku Cloud to confirm trends and potential trades.
It’s worth noting that these indicators are not a standalone solution and should be used in conjunction with other indicators or strategies, including the Ichimoku Cloud, to confirm trends and potential trades.
Ichimoku Kinko Hyo Indicator – FAQ
Is Ichimoku good for forex?
The Ichimoku Kinko Hyo indicator, also known as the Ichimoku Cloud, can be a useful tool for forex traders. It is perceived by many traders as a versatile tool for identifying trends, strong areas of support and resistance, and potential bullish or bearish reversals. The Ichimoku provides multiple signals and indicators in one chart, reducing the need for traders to use multiple indicators to analyze the market.
How does the Ichimoku indicator work?
The Ichimoku indicator uses multiple lines and components, such as the Tenkan-sen and Kijun-sen lines to identify trends, the Senkou Span A and Senkou Span B lines to identify potential areas of support and resistance, and the Chikou Span to identify potential bullish or bearish reversals.
What is the best indicator to use with Ichimoku?
The Ichimoku indicator can be used in conjunction with many technical indicators or strategies to confirm trends and potential trades. To provide a more complete picture of the market, it can also be used in conjunction with other indicators such as RSI, MACD, and Fibonacci retracement.
What are the settings for the Ichimoku indicator?
The default settings for the Ichimoku indicator are 9, 26, and 52, which are the periods used for the Tenkan-sen, Kijun-sen, and Senkou Span B lines. However, traders can adjust the settings to match their preferences.
How reliable is the Ichimoku indicator?
The Ichimoku indicator is a reliable tool for traders, but it’s important to understand its strengths and limitations and how to use it correctly in conjunction with other indicators or strategies. Additionally, traders should always use risk management techniques and set stop-loss orders to limit potential losses.
Is Ichimoku good for intraday trading?
The Ichimoku indicator is actually a lagging indicator, which means it works best in a trending market, and it takes time to confirm a trend. In intraday trading, the market is usually more volatile and doesn’t have a strong trend, therefore the Ichimoku Cloud might not be able to provide reliable signals.
