The Ichimoku Kinko Hyo is a technical analysis indicator based on candlesticks charting. The technique aims at improving the accuracy of forecast price moves. It was published by Japanese journalist called Goichi Hosoda in the late 1960s who spent 30 years working on it before releasing it to the general public.
Ichimoku is a trend identification system based on a moving-average. The fact that it contains more data points than standard candlesticks makes its insights clearer in terms of potential price action. The Ichimoku plots moving averages in a way which is sensibly different from other techniques. In fact, Ichimoku’s lines are constructed using the 50% point of the highs as opposed to the candle’s closing price. Moreover, similarly to William Delbert Grann’s trading ideas, Ichimoku takes into consideration the factor of time in addition to the price action.
The indicator has been subsequently improved and integrated by three other theories: Time Theory, Wave Movement Theory, and Target Price Theory.
There are five key components to the Ichimoku indicator:
- The tenkan-sen, or conversion line, is calculated by adding the highest high and the highest 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
- The kijun-sen, or base line, is calculated by adding the highest high and the lowest low over the past 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 the tenkan-sen and the kijun-sen, dividing the result by two, and then plotting the result 26 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 the lowest 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
- The chikou span, 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