What is Ichimoku Kinkō Hyō?

Ichimoku Kinkō Hyō, commonly known as Ichimoku Cloud, is a technical analysis indicator developed by Japanese journalist Goichi Hosoda in the late 1930s. The name “Ichimoku Kinkō Hyō” can be translated as “equilibrium chart at a glance.” The indicator is widely used in Japanese trading rooms and has gained popularity in the global financial markets.

Ichimoku Cloud provides a comprehensive set of information about potential support and resistance levels, trend direction, momentum, and the likelihood of future price movements. The key components of Ichimoku Cloud include:

  1. Kijun Sen (Base Line): This is a mid-term moving average calculated by averaging the highest high and the lowest low for the past 26 periods.
  2. Tenkan Sen (Conversion Line): This is a short-term moving average calculated by averaging the highest high and the lowest low for the past 9 periods.
  3. Senkou Span A (Leading Span A): It represents the midpoint between the Tenkan Sen and Kijun Sen. This value is plotted 26 periods ahead.
  4. Senkou Span B (Leading Span B): It represents the midpoint of the highest high and the lowest low over the past 52 periods. This value is also plotted 26 periods ahead.
  5. Kumo (Cloud): The area between Senkou Span A and Senkou Span B. It is often shaded to visually represent the cloud.
  6. Chikou Span (Lagging Span): The closing price of the current period plotted 26 periods back.

Traders use Ichimoku Cloud to identify trend direction, potential support and resistance zones, and to generate trading signals. Crossovers of the Conversion Line and Base Line, as well as the position of the price relative to the cloud, are commonly used to make trading decisions. The Ichimoku Cloud is considered a versatile and holistic indicator that can be applied to various financial instruments and timeframes.

See also  The simple moving average (SMA)