Mr. Ichimoku (ICH) – Ichimoku Kynko Hyo in Forex Trading

Mr. Ichimoku is another indicator that helps you identify buy and sell signals.Yeah, here is another Japanese word you want to add to your dictionary. Ichimoku means “first sight.” This is love at first sight, babe! By applying Ichimoku to your forex chart, you will know a lot of secrets about the forex party right away!

Mr. Ichimoku Elements

Now we are going to add all this stuff to the forex dance floor. Don’t panic; your eyes are going to get used to this, and after one day you will feel that a chart without Ichimoku is totally naked. Am I going to bore you with an explanation of how all the lines are calculated? Nah. I don’t feel like it right now. I’ll just give you a basic introduction, and then I’ll jump into the interpretation of Mr. Ichimoku.

Mr. Ichimoku in Action on Forex Chart

Tenkan line ( turn line, solid thin). This is the average of the highest high and the lowest low within the past 9 candles. We can also call

Chiko (sometimes spelled chikou) span (delayed line, thick dashed). This shows the most recent candle’s price, but it is drawn 26 periods behind.

Mr. Ichimoku Interpretation

Oh, Ichimoku, what you do to me! My head is in the Ichimoku cloud, dreaming about the future of the romantic candles dancing at a Euro-American forex party. I look back and see the blue chiko span following me. I look up, and I see the thick, pink kijun line and the thin black tenkan line dancing delightfully above me like danglers. I dream about the new set of earrings that I’m going to buy with my newly earned pips.

Wake up! You need to learn what each of these lines means before you think about buying new earrings with the money that you made at your forex party!

Here is a cheat sheet on how to trade using Ichimoku.

Mr. Ichimoku Buy and Sell Signals

More Secrets Revealed by Mr. Ichimoku

 > As long as the five lines are parallel, the trend will continue in that direction.

 >When the candles are inside the Ichimoku cloud, that means that the market is in the process of consolidating, and it is not a good             time to buy or sell.

 >The lower band of the prevailing cloud can be used as a layer of support.(See figure below)

 >The upper band of the prevailing cloud can be used as a layer of resistance.

Using Mr. Ichimoku as Support and Resistance

Okay, enough advertising about Mr. Ichimoku. It certainly is very powerful in many ways, but just like any other method, you should not rely on it alone. You always have to check in with other analysis techniques before you make a final decision in your trading.

Best Time Frames to Use Ichimoku Kinkou Hyo

On our “Q&A Friday,” we had a question is from Ari who wrote:

“Hi Kiana, I find your book very easy to read. I noticed that you are a bit in favor of Ichimoku Kinko Hyo. My question to you is: what are the best time frames in correlation with Ichimoku ?  Peace! Ari”

ANSWER: Ichimoku Kinko Hyo or how I call it, Mr. Ichimoku, works best for visual traders. Just like any other indicator, the signals you get on charts with different time period are different. So if you are adding Mr. Ichimoku  on your 30-minute chart, you are likely to get a different signal than what you will get on a daily chart. The indicator is automatically calculated by your system based on the time frame that you are using, and it updates every time you change your time frame. So it all comes down to what type of a trader YOU are. If you are a day trader or a scalper, then you can use Mr. Ichimoku on shorter time frames from 1-minute chart to 6 hour. If you are a longer-term trader like myself, then you can use Mr. Ichimoku on the daily or weekly charts. A lot of times it helps if you zoom in and out of time frames to get a better understanding of the market sentiment. Don’t forget that you should never rely on only one indicator when analyzing the markets. You should always make sure that you check in with all points of the Invest Diva Diamond Analysis before making a final trading decision.

Calculation

Four of the five plots within the Ichimoku Kinko Hyo are based on the average of the high and low over a given period of time. For example, the Tenkan line is simply an average of the 9-day high and 9-day low. Before computers were widely available, it would have been easier to calculate this high-low average rather than a 9-day moving average. Here is how you can do the calculation, although you really don’t have to, because your trading platform will magically do it for you.

Tenkan-line (AKA Tenkan-sen, Conversion Line): (9-period high + 9-period low)/2))

The default setting is 9 periods and can be adjusted. On a daily chart, this line is the mid-point of the 9 day high-low range, which is almost two weeks. 

Kijun-line (AKA Kijun-sen, Base Line): (26-period high + 26-period low)/2))

The default setting is 26 periods and can be adjusted. On a daily chart, this line is the mid-point of the 26 day high-low range, which is almost one month). 

Senkou Span A (Leading Span A): (Tenkan Line + Kijun Line)/2))

This is the midpoint between the Conversion Line and the Base Line. The Leading Span A forms one of the two Cloud boundaries. It is referred to as “Leading” because it is plotted 26 periods in the future and forms the faster Cloud boundary, which help traders with predicting future market movements.

Senkou Span B (Leading Span B): (52-period high + 52-period low)/2))

On the daily chart, this line is the mid-point of the 52 day high-low range, which is a little less than 3 months. The default calculation setting is 52 periods, but can be adjusted. This value is plotted 26 periods in the future and forms the slower Cloud boundary.

Chikou Span (Lagging Span, Delayed Span): Close plotted 26 days in the past

The default setting is 26 periods, but can be adjusted.

Okay, enough advertising about Mr. Ichimoku. It certainly is very powerful in many ways, but just like any other method, you should not rely on it alone. You always have to check in with other analysis techniques before you make a final decision in your trading.

Fake Forex Party Time

On your demo trading platform, find the tab button that inserts Ichimoku. Identify the kumo (cloud), the chiko span, the kijun line, and the tenkan line by moving your mouse over each of them. Note that the colors of the lines are different from the way I’m showing you here. In most trading platforms, you can change the color of the lines by going to Properties.

What is the position of the candles against the cloud? What is the direction of the kijun line and the tenkan line? Is the chiko span below or above the cloud? Is Ichimoku projecting a buy signal, a sell signal, or a wait-and-see signal?