ICH (Ichimoku)

The Ichimoku Kinko Hyo Japanese charting technique was developed before World War II by a Japanese newspaper writer with the pen name of Ichimoku Sanjin. The word Ichimoku can be translated as "a glance" or "one look". Kinko translates into "equilibrium" or "balance", and Hyo is the Japanese word for "chart". Thus, Ichimoku Kinko Hyo simply means, "a glance at an equilibrium chart". Ichimoku charts attempt to identify the probable direction of the price and help the trader to determine the most suitable times to enter and/or exit the market.

The Ichimoku Kinko Hyo, or equilibrium chart, isolates higher probability trades in the foreign exchange market. It is new to the mainstream but is growing in popularity among beginners and experienced traders. Known for its applications to futures and stocks, Ichimoku exhibits more data points that provide more reliable price action. It combines three indicators into one chart, allowing the trader to make the most informed decisions.

The main terms of this technique are:

Kijun-Sen demonstrates the average value of the price for the second period of time. Kijun-Sen is a fluctuations' parameter in the Forex market. The price can grow if it is higher than the Kijun-Sen. When the price crosses this line, movements in the trend are predicted. Another variant of the Kijun-Sen usage is the submission of the signals. Kijun Sen resembles the Tenkan Sen but consists of more than 26 periods.

Tenkan-Sen demonstrates the average value of the price for the first period of time; defined as the sum of a maximum and the minimum for this time frame, divided by two. The buy signal is provided when the line Tenkan-Sen intersects Kijun-Sen bottom-up and a sell signal is generated when the Tenkan-Sen crosses Kijun-Sen top-down. Tenkan-Sen is used as the indicator of a Forex trend. The trend exists if this line grows or falls. When it moves horizontally, the Forex market has come into the channel. Tenkan Sen is an average of the highest high and lowest low over 9 periods. There is a signal for selling when the Tenkan-Sen line crosses Kijun-Sen from the bottom-up, the buy signal is provided if it moves from top to down.

Tenkan-Sen is used as the indicator of a market trend. If this line grows or falls - the trend exists. When it goes horizontally - the market has entered the channel.

Senkou Span is a shaded region between the 2 Senkou lines.

Senkou Span A demonstrates the middle between the previous 2 lines, moved forward on the value of the second time frame. Senkou Span B demonstrates the average value of the price for the third time frame, moved forward on the value of the second time frame. The area between them depicts the trend, which is also used as the price of the support and resistance. This leads the actual time by 26 periods.

Calculation

1) Tenkan-Sen = Conversion Line = (Highest High + Lowest Low) / 2, for the past 9 periods;

2) Kijun-Sen = Base Line = (Highest High + Lowest Low) / 2, for the past 26 periods;

3) Chikou Span = Lagging Span = Today's closing price plotted 26 periods behind;

4) Senkou Span A = Leading Span A = (Tenkan-Sen + Kijun-Sen) / 2, plotted 26 periods ahead;

5) Senkou Span B = Leading Span B = (Highest High + Lowest Low) / 2, for the past 52 periods, plotted 26 periods ahead.

The Kumo (or clouds) is the area between Senkou Span A and Senkou Span B.

Main parameters

• Period – the number of periods involved in the indicator calculation, 1 by default;

• Conversion line period i.e. Tenkan Sen period, default is 9;

• Base line period i.e. Kijun Sen period, default is 26;

• Lagging span 2 period i.e. Senkou Span B period, default is 52;

The Ichimoku chart looks as follows: