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Technical Analysis Guide

Oscillator - Ichimoku Kinko Hyo

The Ichimoku Kinko Hyo charting technique was developed by Japanese analyst Hosoda, who wrote under the name of "Ichimoku Sanjin".

The Ichimoku Kinko Hyo indicator consists of five lines:

• Tenkan-sen - the average price level, (High+Low)/2, calculated over the first time period;
• Kijun-sen - the average price level over the second time period;
• Senkou Span A / Up Kumo - midway between Tenkan-sen and Kijun-sen, shifted forward for the length equal to the second time period;
• Senkou Span B / Down Kumo - the average price level over the third time period, shifted forward for the length equal to the second time period.
• Chinkou Span - current bar close, shifted backward for the length equal to the second time period.

The "cloud" known as the "Kumo", is the space between "Senkou Span A" and "Senkou Span B".

• If the price stays above the cloud then there is an upward trend.
• If it stays below the cloud then there is a downward trend.
• If the price is within the cloud then the market is flat.
• If Tenkan-sen line moves sideways then it is a signal for a flat market.

In order to add Ichimoku Kinko Hyo indicator in MetaTrader 4, use "Insert ->Indicators->Oscillators->Ichimoku Kinko Hyo" menu sequence.

Ichimoku Kinko Hyo indicator signals:

• When the price exits the cloud downward it is a sell signal, upward – buy signal:

 

Exit from the cloud

• The price ranges before and after the cloud are often the same.
• When the price and Chinkou Span (green line) intersect it is a signal to make a deal. If Chinkou Span crosses the price line from below it is a buy signal, if it crosses from above it is a sell signal:

Price and Chinkou Span cross

• If Tenkan-sen (red line) crosses Kijun-sen (blue line) from above it is a sell signal, and vice versa:
  

 

Tenkan-sen and Kijun-sen cross

 

• When the price is inside the cloud it tends to move in the direction of Tenkan-sen line (red line). If the Tenkan-sen line is directed downwards then the price tends to move to the lower edge of the cloud and vice versa:

 

Tenkan-sen and Kijun-sen cross

• Kijun-sen (blue line) and cloud edges are very strong resistance/support levels.

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