The Ichimoku KinkoHyo technical analysis method, which means "Equilibrium Graph" in Japanese, was developed by a Japanese journalist named Goichi Hosada in the late 1930s and published in 1969. The method, which includes many technical analysis tools, is a momentum indicator used to determine support, resistance and trend. It is a reliable and powerful algorithm used by traders.The Ichimoku method is designed as 9, 26 and 52 periods, but some investors make their calculations as 10, 30 and 60 periods. The Ichimoku method contains different parameters obtained by the moving averages and moving the prices forward and backward, it gives a wide variety of signals about buying or selling.
- 1.Tenkan Sen = Computed as the sum of the highest and lowest divided by half. Tenkan is based on the previous nine periods.
- 2.Kijun Sen = Computed as the sum of the highest and lowest divided by half. Although the calculation is similar, the Kijun takes into consideration the last 26 periods.
- 3.SenkouSpan A = The total of Tenkan Sen and Kijun Sen divided by two. The computation is then plotted 26 times prior to the current price.
- 4.SenkouSpan B = The total of the highest and lowest, divided by two. This calculation is made within the last 52 periods and is plotted 26 periods in advance.
- 5.ChikouSpan = Regarded as a simple market sentiment, the Chikou is calculated using the latest closing price and is plotted 26 periods behind the price. .
- 6.Kumo = Known as the cloud, this tool is referred to as the area between SenkouSpan A and B.
Tenkan Sen and Kijun Sen
Tenkan Sen and Kijun Sen's crossings provide strong signals to investors.
- If Tenkan Sen crosses above Kijun Sen , this is a harbinger of an uptrend and a buy signal for investors.
- If Tenkan Sen crosses below Kijun Sen, this is the harbinger of a downtrend and is a sell signal for investors.
- If price movements are formed above Kijun-Sen, this is a buy signal for investors, and vice versa, if price movements are formed below Kijun-Sen, this is a sell signal for investors.
SenkouSpan A and SenkouSpan B
The Ichimoku chart is also used to identify support and resistance points, providing traders with access to several technical analyses on a chart. The lower and upper bounds of the Ichimoku cloud are determined by these two Spans. These two tools show 26 periods of lead, enabling traders to anticipate impending levels of support and resistance.
- SenkouSpan A is the first level of support for a bullish trend and the first level of resistance for a bearish trend.
- SenkouSpan B is the second level of support for the bullish trend and the second level of resistance for the bearish trend.
- If SenkouSpan A rises above SenkouSpan B, this signals a potential bullish trend for investors. Conversely, if SenkouSpan B rises above SenkouSpan A, it is a precursor to a potential bearish trend for investors.
- If ChikouSpan crosses above the prices, it is a harbinger of a possible uptrend for investors.
- If ChikouSpan is crosses below the prices, it is a harbinger of a possible downtrend for investors.
The Ichimocu cloud is the zone between SenkouSpan A and SenkouSpan B values. In other words, SenkouSpan A and SenkouSpan B constitute the limits of the Ichimoku cloud. The resulting cloud gives direction to investors weather the trend in the next 26 periods will be an uptrend or a downtrend.
It is considered that support or resistance is stronger in the region where the cloud is thick, and that the support or resistance is weaker in the region where the cloud is thin.
If the Ichimoku Cloud has changed from red to green, this is considered a buy signal for traders. Conversely, if the Ichimoku Cloud has changed from green to red, this is considered a sell signal for investors.
If the price movement passes through the cloud and there is a breakout out of the cloud, this is interpreted as the trend will continue in the direction of the breakout. In other words;
- If the price action goes above the cloud, this is interpreted as an uptrend.
- If the price action goes below the cloud, this is interpreted as a downtrend.
- If the price movement is moving in the cloud, then it can be interpreted that the price movement is indecisive, and a position can be taken when the price movement goes out of the cloud.