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The word “Ichimoku” means a glance, “Kinko” means equilibrium, while the word “Hyo” means chart. So if you would put every word in one phrase, it would say “a glance at a chart in equilibrium”.
What exactly is the Ichimoku Kinko Hyo Indicator
Does it still look vague to you? Ichimoku Kinko Hyo is a tool developed by a writer Goichi Hosoda and some assistants that run multiple calculations any analysis in the forex industry. A lot of Japanese trading rooms are using it up until now to analyze price action and developing a higher probability result in trading. Ichimoku Kinko Hyo is known for its intimidating chart since it uses lots of lines in different colors when applied. However, it is actually easy to understand just like other chart indicators.
To understand the function of each colored line, check out its meaning below:
Once everything was plotted on the chart, the area between the Senkou Span lines is called Kumo or Cloud. The cloud simply acts as a moving support / resistance zone. If a price is above the cloud, then the cloud forms support zone, and vice versa. In the picture below, you can see how USDJPY bounced several times higher after approaching the Cloud.
Thanks to the Kumo, you can also easily analyze current trend. Price above the Kumo means a bullish trend, while price below the Kumo is signaling bearish trend.
The blue line - Kijun Sen - is usually used for predicting future price moves. If price is above the Kijun Sen, then further upside move is expected, and vice versa.
The red line - Tenkan Sen - is usually used as a short-term trend indicator. If the Tenkan Sen line is pointing either upside or downside, it means that there is an established trend in the market. While horizontal Tenkan Sen is signaling a sideway trend.
The green line - Chikou Span - can be used for spotting important turning points for drawing support and resistance levels. It is also possible to use it as an entry signal - if the green line crosses current market price from downside to upside, it can be considered as a buy signal, and vice versa.
Crystal clear? Well, it is not that necessary to munch in everything in one sitting since it’s more important to know how the lines should be interpreted. Ichimoku Kinko Hyo chart indicator may look intimidating at first, but it’s actually handy once understood. It is a 3-in-1 tool that offers more filter to price action for all currency traders.
There are just tens or maybe even hundreds of possible techniques and strategies that can be created based on the Ichimoku Kinko Hyo indicator - from using it as a support / resistance indicator or opening / closing orders based on the lines of the indicator or Price Action happening near the Kumo, to using the lines of the indicator as a trailing stop-loss level. There are simply almost no limits when testing and trading the Ichimoku Kinko Hyo indicator.
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