Today I am going to explain you what is Ichimoku Kinko Hyo and how to trade it. Moreover, I will show you how I trade a combination of Ichimoku Kinko Hyo with volume spread analysis as I said in my previous articles. Ichimoku is an indicator and there is in every platform. So, just look for it in the indicator’s list and drop it to your chart. First of all, take a look in the first screen shot about how this indicator look like.
This chart is from EURUSD currency pair and I use only the Ichimoku and the Better Volume Indicator. I am working in a 5min chart. The first thing you will notice it’s obviously the cloud. This is Kumo. The upper line of Kumo is senkou span A and the other one the senkou span B. The blue line which look like a moving average is the Kijun and the red one the tankan. Last, the green one is the chinkou. So, the whole thing is the “Ichimoku Kinko Hyo”. Maybe you are confused right now but I am going to explain how this complicated thing is a very strong tool for the technical analysis.
There are many theories and trading systems around this indicator and I will tell you the basics and how I use this with volume and price action. First of all, you should know that Ichimoku works better in trending markets and If you are able to catch a trend from the beginning in financial products like Spread Bets, Spot Forex you will earn good money. You can also use it in Binary Options but I recommend longer expiries.
- Kumo break
If the price is above the Kumo there is a bullish activity in the market and an up-trend. If the price is below the Kumo there is a bearish activity in the market and a down- trend. Some traders are waiting for a Kumo’s break. Maybe, it will be the beginning of a new trend. Take a look.
In the first blue box the price broke the Kumo and we have an up- trend. In the second blue box the price broke the Kumo (senkou B) and we have a mini- down trend.
- Tenkan – Kijun Crossovers
Another theory for the Ichimoku is about the Tenkan- Kijun Crossovers. When the tankan(the red) is above the Kijun(the blue) we have a bullish market. On the other hand when Kijun is above Tenkan there is a bearish market. So, with a crossover of these two we can take long or short signals.
In this screen shot you can see a crossover and after it the Kijun is above so we have a short signal.
- Support & Resistance
Some traders use Ichimoku to identify supports and resistances. Many of them use the chinkou as a S&R. Notice the above chart, some minutes before the blue box. The price is moving down and the chinkou(the green one) acts as a support. Other traders, use the Kumo lines (senkou A and B) as S&R especially when the price fails to break the kumo the first time and it creates a S&R inside the Kumo.
I’m around in the forum so any questions hit me up there!
More about Ichimoku: here.