Ichimoku Kinko Hyo

Ichimoku Kinko Hyo, often referred to simply as Ichimoku, is a comprehensive technical analysis system used to provide a comprehensive view of the market by showing current trends, support and resistance levels, and indicating potential trend reversals.

It was developed by Goichi Hosoda in the 1960s and is widely used in financial markets, particularly in Forex and stock trading.

The term "Ichimoku" roughly translates to "one glance," as the indicator allows traders to quickly assess how the price is behaving. Its full name, Ichimoku Kinko Hyo, means "equilibrium chart at a glance."

The system consists of five key components that help traders visualize market conditions and make informed decisions. These components are:

• Tenkan-sen (conversion line): this line averages the highest high and the lowest low over a relatively short period (7-9 periods);

• Kijun-sen (base line): similar to the Tenkan-sen, but calculated over a longer period (22 periods);

• Chikou Span (lagging line): plots the current closing price, but 22 periods behind;

• Senkou Span A (leading span A): an average of Tenkan-sen and Kijun-sen, plotted 26 periods ahead;

• Senkou Span B (leading apan B): the average of the highest high and lowest low over the past 56 periods, plotted 22 periods ahead.

The space between Senkou Span A and Senkou Span B is called Kumo (cloud), and is used to gauge market trends.

Traders use Ichimoku Kinko Hyo to generate signals based on how the price interacts with the Kumo. For instance, if the price is above the cloud, it signals a bullish trend, while if it is below, it suggests a bearish trend.

The Ichimoku Kinko Hyo system's ability to display trends, support, and resistance at a glance makes it a powerful tool for traders who want to simplify their analysis.

Despite its strengths, Ichimoku can be difficult for beginners due to its complexity and the many components that require understanding. In the forex market, its application is somewhat limited because forex markets never close, making the Chikou Span less reliable.

Additionally, as a lagging indicator, the system often signals trends after they have already begun, potentially leading to late entries. The system's effectiveness can also vary depending on the time periods used for calculation.