The Ichimoku Kinko Hyo indicator is known as one of the most remarkable and used indicators for Forex, the world’s most important and liquid market. It was created in the 1930s with the aim of making the use of Japanese Candlestick Charts easier and perceiving the price movements on the graph easier, but it became common at the end of the 1960s and has been used that way until today.
The Ichimoku Kinko Hyo indicator which was created with the inspiration coming from the moving averages is used to discover the trend direction of the asset for trading and to find out about the support and resistance levels.
In order to access the Ichimoku Kinko Hyo indicator in the MetaTrader platform, you can respectively click on the tabs of Toolbar, Insert, Indicator, and lastly, Trend.
While uploading the indicator to the platform, the sections of Parameters and Colors are included. We didn’t do any changes in the related sections but we made the Up Kumo and Down Kumo lines bold to make our training stronger visually.
The parameters section can allow us to see the applications that allow building the system that is subject to trade which takes place in the Ichimoku Kinko Hyo indicator. There are tools such as Tenkan-Sen, Kijun-Sen, Chikou Span, and Kumo in the indicator. The calculations for these sections are included in the Parameters section.
In a system that is formed under the influence of the Moving Averages;
- Tenkan- Sen line is created by dividing the sum of the 9-period lowest and highest levels by 2.
- Kijun- Sen line is created by dividing the sum of the 26-period lowest and highest levels by 2.
- The Chikou Span line is created by sliding the closing price 26-periods back.
The cloud area known as Kumo can be defined as the area between Senkou Span A and B.
- Senkou Span A calculation is obtained by adding the prices of Tenkan – Sen ve Kijun – Sen then dividing the total by 2 and sliding it 26 periods forward.
- Senkou Span B calculation is obtained by adding the highest and lowest prices in the last 52-periods, then dividing it by 2 and sliding the result 26 days forwards.
Even though the Ichimoku Kinko Hyo indicator has been viewed as a complicated structure in terms of formulation, it provides a more simple and clear view in terms of interpretation to traders.
The Interpretation of the Indicator:
The main point to pay attention to in the interpretation of the indicator is whether the asset price is under or inside the cloud area.
If any asset is going to be in the positive area meaning it will create an uptrend, the related asset price needs to be over the cloud area. The cloud color in the positive area is orange.
If any asset is going to be in the negative area meaning it will create a downtrend, the related asset price needs to be below the cloud area. The cloud color in the positive area is purple.
If any asset is going to be in the neutral area, there is a neutral view related to the financial asset which means there will be a horizontal trend expectation.
It is not enough for the price to be in the negative or positive area (positive or negative trend). There needs to be a signal that will support the related view in this area.
If there is going to be a strong positive signal, in addition to the pricing in the positive area, the Tenkan-Sen line needs to pass the Kijun-Sen line upwards.
If there is going to be a strong negative signal, in addition to the pricing in the negative area, the Tenkan-Sen line needs to pass the Kijun-Sen line downwards.
If in the positive area, the Tenkan-Sen line breaks the Kijun-Sen line downwards, meaning it gives a negative signal, the strength of the signal changes from strong to medium-strong. Likewise, if in the negative area, the Tenkan-Sen line breaks the Kijun-Sen line upwards, meaning it gives a positive signal, the strength of the signal changes from strong to medium strong.
Tenkan- Sen line breaking the Kijun-Sen downwards while the pricing continues in the cloud area signifies a poor negative signal while Tenkan- Sen line breaking the Kijun-Sen upwards signifies a weak positive signal.
*** In general, don’t forget to be in the area supporting the related signal in order to make decisions while keeping the trade risk at a minimum. In other words, if there is going to be a buy signal in an asset, you need to be in the positive area. If there is going to be a sell signal, you need to be in the negative area. This needs to be considered as the slogan of minimum risk.