Ichimoku Kinko Hyo

Ichimoku Kinko Hyo

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DEFINITION of 'Ichimoku Kinko Hyo'

A technical indicator that is used to gauge momentum along with future areas of support and resistance. The Ichimoku indicator is comprised of five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B and chickou span. This indicator was developed so that a trader can gauge an asset's trend, momentum and support and resistance points without the need of any other technical indicator.

BREAKING DOWN 'Ichimoku Kinko Hyo'

"Ichimoku" is a Japanese word that means "one look." This charting technique was created by a Japanese newspaper writer. It does look very complicated when a trader sees the indicator for the first time, but don't hesitate to give this indicator a try because the complexity quickly disappears once you gain an understanding of what the various lines mean and why they are used.

Senkou Span A

DEFINITION of 'Senkou Span A'

A component of the Ichimoku Kinko Hyo indicator that is used to measure momentum and future areas of support and resistance. Senkou span A is always plotted alongside Senkou span B and the area between the two lines is filled with shaded indicator lines, also known as the cloud, which is used by traders to predict levels of future support/resistance. Senkou span A is calculated by using the following formula:

BREAKING DOWN 'Senkou Span A'

The trend is deemed to be downward when Senkou span A is located below senkou span B. In practice, the indicator is most commonly used to predict the reversal of a current trend when the senkou spans cross over each other.

Senkou Span B

DEFINITION of 'Senkou Span B'

A component of the Ichimoku Kinko Hyo indicator that is used to create the 'cloud' of the indicator. Senkou span B is always plotted alongside Senkou span A and the area between the two lines is shaded. The shaded area, known as the cloud, is then used to give traders an idea of future support and resistance. Senkou span B is calculated by using the following formula:

Senkou span B is generally regarded as the slowest moving component of the Ichimoku indicator because it is created by using the greatest number of time periods in its calculation (generally 52 time periods).

BREAKING DOWN 'Senkou Span B'

The trend is deemed to be downward when Senkou span A is located below senkou span B. In practice, the indicator is most commonly used to predict the reversal of a current trend when the two senkou spans cross over each other.

Ichimoku Cloud

What is the 'Ichimoku Cloud'

The Ichimoku cloud is a chart used in technical analysis that shows support and resistance, and momentum and trend directions for a security or investment. It is designed to provide relevant information at a glance using moving averages (tenkan-sen and kijun-sen) to show bullish and bearish crossover points. The "clouds" (kumo, in Japanese) are formed between spans of the average of the tenkan-sen and kijun-sen plotted six months ahead (senkou span B), and of the midpoint of the 52-week high and low (senkou span B) plotted six months ahead.

BREAKING DOWN 'Ichimoku Cloud'

The ichimoku cloud was developed by Goichi Hosoda, a Japanese journalist, and published in the late 1960s. It provides more data points than the standard candlestick chart.


The overall trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself. When senkou span A is rising above senkou span B the trend is stronger upward, and is typically colored green. When senkou span B rises above senkou span A, the trend is stronger downward and is denoted with a red-colored cloud.

Tenkan-Sen

DEFINITION of 'Tenkan-Sen'

The mid-point between the highest high and lowest low of a particular security calculated over the past nine periods. The Tenkan-Sen line is the conversion line used specifically in the Ichimoku Kinko Hyo (or Ichimoku Cloud) equilibrium charts. Along with the 26-period moving average, Kijun-Sen, it is one of two moving average lines displayed in the chart.


This line is calculated by using the following formula:

The resulting line is interpreted in the same manner as a short-term moving average. 


Also known as "Tenkan-Sen line" or simply "Tenkan line".

BREAKING DOWN 'Tenkan-Sen'

The Tenkan-Sen is generally used in combination with the Kijun-Sen to create predications of future momentum. A buy signal is created when the Tenkan-sen line moves above the Kijun-Sen, while a sell signal is created when the Tenkan-Sen line moves below the Kijun-Sen line. 

Many technical traders use the Tenkan-Sen as a tool for predicting levels where the price of the asset will find short-term support. 

When reading Ichimoku Kinko Hyo charts, investors should note that the Tenkan-Sen line leads the Kijun-Sen, and tracks price with more sensitivity because it covers a shorter period of time. When the Tenkan-Sen line crosses and moves above the Kijun-Sen line, this is generally considered a bullish signal. Alternatively, when the Tenkan-Sen line crosses below the Kijun-Sen line, it is considered a bearish signal.

Kijun-Sen

DEFINITION of 'Kijun-Sen'

The Kijun-Sen is a major indicator line and component of the Ichimoku Kinko Hyo indicator, also known as the Ichimoku cloud. It is generally used as a metric for medium-term momentum. The Kijun-Sen line calculation utilizes the following formula:

The formula used to calculate the Kijun-Sen is almost identical to that of the formula used to calculate the Tenkan-Sen line. It differs in that the quantity of time periods used in the calculation is increased so long-term momentum can more effectively be gauged.

BREAKING DOWN 'Kijun-Sen'

The Kijun-Sen is almost always used, specifically, in combination with the Tenkan-Sen to generate predictions of likely future price movements. When the Tenkan-Sen line moves above the Kijun-Sen line, a buy signal is created. A sell signal is created, conversely, when the Tenkan-Sen line moves below the Kijun-Sen line. The Kijun-Sen line, along with each individual element of the Ichimoku cloud method, should never be considered in isolation but considered in context with the entire chart.

Ichimoku Cloud

The Ichimoku cloud method was developed and published in 1968 by Goichi Hosoda, a Tokyo newspaper writer, along with a number of assistants running various calculations. While this method is intimidating to many traders, due to the various lines created once applied, it is readily utilized by Japanese trading rooms as it provides a variety of tests on price action and allows for higher probability trades. There are four major components of this method.

Tenkan-Sen

The Tenkan-Sen, as indicated earlier, is most commonly used in conjunction with the Kijun-Sen to generate buy and sell signals. The formula for its calculation takes the highest high and the lowest low and divides it by two. It is calculated over the past seven to eight time periods.

Kijun-Sen

The Kijun-Sen is typically viewed as a trigger line for traders that implement the Ichimoku cloud method. Its calculation is identical to that of the Tenkan-Sen, except for the fact it accounts for the past 22 time periods, allowing for a much more accurate gauge on long-term momentum.

Senkou Span A

This span refers to the sum of the Tenkan and the Kijun, divided by two. This calculation is plotted ahead of current price movement by 26 time periods.

Senkou Span B

This span is the sum of the highest high and lowest low, divided by two. The calculation is taken for the past 52 time periods and, like span A, is plotted ahead 26 time periods.

Implications

After being plotted, the space between the Tenkan and Kijun is called the kumo, or cloud. This cloud is substantially thicker than general resistance and support lines and provides traders a much more thorough filter. The cloud typically accounts for volatility. When a line breaks through the cloud and movement follows, either above or below, a better trade is suggested.

Kijun Line

DEFINITION of 'Kijun Line'

The mid-point between the highest high and lowest low of a particular security. The kijun line, also called kijun-sen, is the base line used specifically in ichimoku kinko hyo (or ichimoku cloud) candlestick charts. It is one of two moving average lines displayed in the chart, and is a 26-period moving average. (The other line, tenkan-sen, is a nine-period moving average.)

BREAKING DOWN 'Kijun Line'

When reading ichimoku kinko hyo, investors should note that the kijun line lags behind the tenkan-sen, and trails price less sensitively because it covers a longer period of time. When tenkan-sen crosses and moves above the kijun line, this is generally considered a bullish signal.

Chikou Span

DEFINITION of 'Chikou Span'

A component of the Ichimoku Kinko Hyo indicator that is created by plotting recent price movement 26-periods behind the latest closing price. The number of periods used to lag the Chikou span is customizable so that transaction signals are generated more or less frequently.

Also known as the "lagging span".

BREAKING DOWN 'Chikou Span'

The trend is deemed to be upward when the Chikou span is located above the closing prices and downward when the indicator is located below them. Many traders watch for the Chikou span to cross below the closing prices as a signal that the price of the asset is getting exhausted and is likely to experience a pullback.

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