Yes, you're still in the right place. You're still in the School
of Pipsology and not in some Japanese pop fan girl site (although Huck may
disagree with the rest of the FX-Men on that). No, "Ichimoku Kinko
Hyo" ain't Japanese for "May the pips be with you," but it can
help you grab those pips nonetheless.
Ichimoku Kinko Hyo (IKH) is an indicator that gauges future price
momentum and determines future areas of support and resistance. Now that's
3-in-1 for y'all! Also know that this indicator is mainly used on JPY pairs.
To add
to your Japanese vocab, the word ichimoku translates to "a glance", kinko means "equilibrium", while hyo is Japanese for "chart."
Putting that all together, the phrase ichimoku kinko hyo stands for "a glance at a chart
in equilibrium." Huh, what does all that mean?
A chart might make things easier to explain...
Whoops. That didn't help. A few more lines and this'll resemble a
seismograph.
Before you go off and call this gibberish, let's try to find out
what each of the lines is for.
Kijun
Sen (blue
line): Also called standard line or base line, this is calculated by averaging
the highest high and the lowest low for the past 26 periods.
Tenkan
Sen (red
line): This is also known as the turning line and is derived by averaging the
highest high and the lowest low for the past nine periods.
Chikou
Span (green
line): This is called the lagging line. It is today's closing price plotted 26
periods behind.
Senkou
Span (orange
lines): The first Senkou line is calculated by averaging the Tenkan Sen and the
Kijun Sen and plotted 26 periods ahead. The second Senkou line is determined by
averaging the highest high and the lowest low for the past 52 periods and
plotted 26 periods ahead.
Got it? Well, it's not really necessary for you to memorize how
each of the lines is computed. What's more important is for you to know how to
interpret these fancy lines.
How to Trade Using Ichimoku Kinyo Hyo
Let's take a look at the Senkou span first.
If the price is above the Senkou span, the top line serves as the
first support level while the bottom line serves as the second support level.
If the price is below the Senkou span, the bottom line forms the
first resistance level while the top line is the second resistance level. Got
it?
Meanwhile, the Kijun Sen acts as an indicator of future price
movement. If the price is higher than the blue line, it could continue to climb
higher. If the price is below the blue line, it could keep dropping.
The Tenkan Sen is an indicator of the market trend. If the red
line is moving up or down, it indicates that the market is trending. If it
moves horizontally, it signals that the market is ranging.
Lastly, if the Chikou Span or the green line crosses the price in the
bottom-up direction, that's a buy signal. If the green line crosses the price
from the top-down, that's a sell signal.
Here's that line-filled chart once more, this time with the trade
signals:
It sure looks complicated at first but this baby's got support and
resistance levels, crossovers, oscillators, and trend indicators all in one go!
Amazing, right?
Okey dokey, we've already covered a smorgasbord of indicators.
Let's see how we can put all of what you just learned together...
