It is all in one technical indicator that help the traders to gauge the future areas of support and resistance. Ichimoku Kinko Hyo was originally developed by a Japanese well known writer. He combines numerous technical strategies into all in one single indicator that can be easily interpreted and implemented. In Japanese, Ichimoku means one look, traders have to look at chart once to find the support and resistance.
Ichimoku Kinko Hyo is comprises of total five lines named tenkan-sen, kijun-sen, senkou span A, senkou span B and chikou span. Ichimoku Kinko Hyo looks very complex to traders who have not seen it before due to its complex shaped chart, but its complexity disappears very quickly with proper understanding of what lines means and why they are used.
Let discuss these five lines one by one.
- Tenkan-sen – it is also called conversion line. It is calculated by adding the highest low and highest high of previous nine periods and then dividing the total by two. The resulting line signifies main supports and resistance levels.
- Kijun-sen – it is also called base line. It is calculated by adding the lowest low and highest high of previous 26 periods and result line is obtained by dividing the total by two. The resulting line represents the confirmation of trend change and key support and resistance level. This line can also be used as trailing stop loss point.
- Senkou span A – it is also called leading span A. it is calculated by adding the Tenkan-sen and Kijun-sen, dividing the total by two and then plotting the result of 26 periods ahead. The resulting line form a cloud or one edge of the kumo that represent the future areas of support and resistance.
- Senkou span B – it is also called leading span B. It is calculated by adding the lowest low and highest high of previous 52 periods, dividing the total by two and then plotting the result of 26 periods ahead. The resulting is used to indicate the future areas of support and resistance.
- Chikou span – it is also called lagging span. It is current period closing price plotted 26 days back on the chart. The resulting line is used to identify the possible areas of support and resistance.
In spite of its goal being all in one indicator, if it is used in conjunction with different other technical indicators, it can be more useful for the traders.