Now right now you might be a bit confused/intimidated by the title of this page, don't worry all will be explained. Ichimoku Kinko Hyo (IKH) is an indicator that measures future price momentum, highlights future ares of Support and Resistance, so it performs three jobs. As you might have already guessed IKH was developed in Japan and so this indicator is mainly used on Japanese currency pairs (USD/JPY, GBP/JPY, EUR/JPY.....etc). Below is an Image of IKH Plotted on a chart.
At first glance this chart looks messy and confusing, but there is some method to to this madness:
Kijun Sen (blue line): Also called standard line or base line, this is calculated by averaging the highest high and the lowest low for the past 26 periods.
Tenkan Sen (red line): This is also known as the turning line and is calculated by averaging the highest high and the lowest low for the previous nine periods.
Chikou Span (green line): This is called the lagging line. It is today’s closing price set to 26 periods behind.
Senkou Span (orange lines): The first Senkou line is derived by averaging the Tenkan Sen and the Kijun Sen and plotted 26 periods ahead. The second Senkou line is determined by averaging the highest high and the lowest low for the past 52 periods and plotted 26 periods ahead.
How to Trade Using Ichimoku Kinko Hyo
Now that you understand the components of Ichimoku Kinko Hyo it's time you knew how to incorporate into your trading.
Lets focus firstly on the Senkou Span.If the price is above the Senkou Span, the top line act as the first support level while the bottom line serves as the second support level, and If the price is below the Senkou Span, the bottom line becomes the first resistance level while the top line becomes the second resistance level.
Now lets take a look at the Kijun Sen, if the price is higher than the blue line, it may continue to rise higher. If the price is beneath the blue line, it could continue falling.
Next we Have the Tenkan Sen, If the red line is moving up or down, it indicates that the market is trending. If it moves horizontally, it signals that the market is ranging.
Lastly we have the Chikou Span, If the green line crosses the price upwards from below, that’s a buy signal. If the green line crosses the price from the downwards from above, that is signal to sell.
Below is the chart with IKH plotted on it you were shown before, this time with the trade signals:
One of the main benefits of IKH is that it is like a combination of different types of indicators, this makes it quite reliable.