Ichimoku (Ichimoku Kinko Hyo – Japanese for “one view on the balance chart”) brings together various approaches to price forecast movements and combines a series of indicators. The indicator is used to indicate market trends, determine support and resistance levels and generate sell and buy signals. The Ichimoku indicator was developed by analyst Goichi Hosoda (Ichimoku Sanjin) in the 1930s with the aim of predicting the behavior of the Nikkei stock index on weekly and daily timeframes.
Tenkan-sen (rotary line) colored red in the graph shows the value of the average price at the time the first interval is determined as the maximum and minimum amount in this period, divided into two. Tenkan-sen shows the direction of the short-term trend.
Kijun-sen (standard line; base line) is blue. This line shows the average price value during the second interval. Kijun-sen is used to indicate market trends. When the price is higher than J = Kijun-sen, the market is bullish; if the price is lower than Kijun-sen, the market is bearish.
Senkou A (the first reference line) shows the middle distance between the two previous lines that moved forward by the price of the second interval.
Senkou B (second reference line) shows the average price value during the third interval that moves forward by the price of the second interval.
Kumo (cloud) is a crosshatched space between senkou span A and B. The price in Kumo is a sign of the trendless market, and in this case the upper and lower lines of the cloud act as support and resistance. If the price is above Kumo, the top line on the cloud acts as the first support, while the bottom line acts as the second support. When the price is below Kumo, the bottom line of the cloud looks like the closest resistance, and the top line – the second resistance.
Chinkou Span (lagging line) based on the current closing price. The Chinkou span shows the closing price moving backwards with the value of the second interval. If the Chinkou Span passes the price chart from the bottom increase, then it is the price to buy. A sell signal occurs when passing the price chart in the top-down direction. Its Tenkan, Kijun and Senkou lines are used simultaneously as the MACD indicator. Chinkou Span is similar to the standard MetaTrader4 indicator – Movement.
The developer of this indicator recommends setting the following parameters: Tenkan-sen: 9; Kijun-sen: 26; Senkou A: 52; Senkou B: 26. This is the optimal parameter for weekly trading on the stock market in Japan. They are also effective for timeframes and other markets.
Ichimoku trading signal
When Tenkan-sen passes Kijun-sen from the bottom up, this is a sign to open long positions. If you pass Kijun-sen from the top portion, it is a sign to make a sale. If Senkou A and Senkou B pass each other in the bottom-up direction, it will be a sign of purchase. If they pass each other in the opposite direction, then it’s time to make a sale.
The indicator generates a signal for purchase, when the price chart is crossed from a lower increase. And, on the contrary, it’s time to make a sale when Ichimoku lines passes the price chart from the upper drop. If Chinkou Span passes the price chart in a bottom-up direction, then it is a sign of purchase. If Chinkou Span passes the price chart in the top-down direction, it will be a sign of the sale.