Ichimoku Kinko Hyo
What is Ichimoku Kinko Hyo? Explained Clearly for Beginners on How to Interpret and Use It
Table of Contents
1. Overview of Ichimoku Kinko Hyo
2. Components of Ichimoku Kinko Hyo
- 2-1. Tenkan-sen (Conversion Line)
- 2-2. Kijun-sen (Base Line)
- 2-3. Senkou Span A (Leading Span 1)
- 2-4. Senkou Span B (Leading Span 2)
- 2-5. Chikou Span (Lagging Span)
1. Overview of Ichimoku Kinko Hyo
This is a technical indicator developed by Mr. Goichi Hosoda (Ichimoku Sanjin) of Japan, used to visually grasp the market trend, strength, and balance. This indicator uses multiple lines to support trend analysis and support/resistance judgments.
2. Components of Ichimoku Kinko Hyo
Ichimoku Kinko Hyo is composed of the following five lines:
2-1. Tenkan-sen (Conversion Line)
- Formula: (Highest Price + Lowest Price) ÷ 2 over the past 9 periods
- Shows short-term trend and visualizes market direction.
2-2. Kijun-sen (Base Line)
- Formula: (Highest Price + Lowest Price) ÷ 2 over the past 26 periods
- Indicates medium-term trend and market balance.
2-3. Senkou Span A (Leading Span 1)
- Formula: (Tenkan-sen + Kijun-sen) ÷ 2
- Plotted 26 periods ahead, forming part of the Cloud (Kumo).
2-4. Senkou Span B (Leading Span 2)
- Formula: (Highest Price + Lowest Price) ÷ 2 over the past 52 periods
- Plotted 26 periods ahead, forming the other side of the Cloud.
2-5. Chikou Span (Lagging Span)
- Formula: Current closing price plotted 26 periods behind
- Compares the current price with past prices to confirm market momentum.
3. Importance of the Cloud (Kumo)
- Cloud Range: The area between Senkou Span A and Senkou Span B is called the "Cloud" and represents support and resistance zones in the market.
- Cloud Color: If Senkou Span A is above Senkou Span B, it is interpreted as a bullish cloud (usually displayed in a bright or green color); conversely, if Senkou Span A is below Senkou Span B, it is interpreted as a bearish cloud (usually displayed in a dark or red color), suggesting the direction of the trend.
4. Main Usage Methods
4-1. Trend Analysis
- If the price is above the Cloud: Uptrend.
- If the price is below the Cloud: Downtrend.
4-2. Entry Points
- When Tenkan-sen crosses above Kijun-sen, it's a "buy signal."
- When Tenkan-sen crosses below Kijun-sen, it's a "sell signal."
4-3. Confirmation of Support and Resistance
The range of the Cloud functions as support to uphold price movement or resistance to hold it down.
5. Practical Examples
Buy Signal: When the price breaks above the Cloud and Tenkan-sen crosses above Kijun-sen.Sell Signal: When the price breaks below the Cloud and Tenkan-sen crosses below Kijun-sen.
6. Considerations
Points of Caution
- Lagging Nature: Like other indicators, Ichimoku Kinko Hyo also has a lagging nature, so signals based on past data may be delayed.
- Market Environment Suitability: It is effective in trending markets, but there is a possibility of increased noise in ranging markets.
7. Summary
Ichimoku Kinko Hyo may look complex, but once you are familiar with it, it is an excellent indicator that allows you to grasp trends, support, and resistance at a glance. By combining it with other indicators, you can perform analysis with even higher accuracy.