So it seems that Japanese are not only good turning raw fish into tasty overpriced pieces of art called sushi. Exactly, they also make fantastic cars and quartz watches. But there is more: have you heard of “Ichimoku Kinko Hyo”?
If you are trading for a few months already, you might have heard or read something about it. The fact is “Ichimoku Kinko Hyo” or simply “Ichimoku” is not the kind of stuff you want to deal with when you are still trying to figure out what SMA stands for.
This Nippon-borned technical indicator is mainly used to measure momentum with future areas of support and resistance. There are five components that integrate it: tenkan-sen, kijun-sen, chinkou span, senkou span A and senkou span B.
The main advantage of this technical indicator is that it can save you valuable minutes. Ichimoku translates as “one look”, which outlines the idea behind this analysis tool: taking one single look to determine support, resistance and momentum.
I know… it might look a bit too complicated, but believe it or not, once you crack into it, information will flow smoothly and you’ll laugh of how easy to read graphics actually are:
Tenkan-sen: It is calculated by adding the highest high and the highest low of the nine prior periods and then dividing the total by two. As a result you get a line that acts as a support and resistance level, but also as a signal line for potential reversals.
Kijun-sen: It is calculated by adding the highest high and the lowest low of the past 26 sessions and dividing that number in half. The resulting line is a support and resistance level, and can also be used to validate a change of a particular trend.
Chickou Span: The chickou span is the current period's closing price plotted 26 days back on the chart. This line is used to show possible areas of support and resistance.
Senkou Span A: It is calculated by adding the tenkan-sen and the kijun-sen, dividing that by two, and afterwards plotting the result 26 periods ahead. That line is a limit of the kumo (cloud).
Senkou Span B: It is calculated by adding the highest high and the lowest low of the past 52 sessions, dividing that in half, and then plotting the result 26 periods in advance. That’s the other limit of the kumo, which serves to identify support and resistance levels.
