Ichimoku Kinko Hyo is a powerful technical indicator designed to provide traders with valuable insights into market trends, support and resistance levels, and buy/sell signals.
This indicator shines best when applied to weekly and daily charts. It utilizes four different time intervals to define its parameters, with each line of the indicator based on these intervals:
- Tenkan-sen: This line represents the average price during the first time interval, calculated as the sum of the maximum and minimum prices within that period, divided by two.
- Kijun-sen: Similar to the Tenkan-sen, this line shows the average price over a second time interval.
- Senkou Span A: This line is the midpoint between the Tenkan-sen and Kijun-sen, shifted forward by the value of the second time interval.
- Senkou Span B: This line represents the average price during a third time interval, also shifted forward by the second time interval.
The Chikou Span displays the closing price of the current candle, shifted back by the second time interval. The area between the Senkou lines is often shaded and referred to as the “cloud.” When the price is positioned between these lines, the market is typically considered non-trending, with the cloud’s edges serving as support and resistance levels.
- If the price is above the cloud, the upper line acts as the first support level, while the lower line serves as the second support level.
- Conversely, if the price is below the cloud, the lower line becomes the first resistance level, and the upper line becomes the second resistance level.
- When the Chikou Span crosses the price chart from below to above, it signals a potential buy opportunity. If it crosses from above to below, it indicates a potential sell signal.
The Kijun-sen is a crucial indicator of market movement. If the price is trading above this line, it suggests that prices are likely to continue rising. A cross below the Kijun-sen may indicate a possible trend reversal. The Kijun-sen also provides trading signals: when the Tenkan-sen crosses above it, that’s a buy signal; crossing below signals a sell. The Tenkan-sen itself indicates market trends: a rising line shows an uptrend, while a falling line indicates a downtrend. A horizontal line suggests that the market may be consolidating.
Explore the Ichimoku Kinko Hyo indicator
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