Ichimoku forex forecasting
Ichimoku Kinko Hyo is Japanese for “one
glance cloud chart.” It consists of five
lines called Tenkan-sen, Kijun-sen (sen is
Japanese for line), Senkou Span A, Senkou
Span B and Chinkou Span. The calculation
uses four different time periods which we
call termT, termK, termS and termC. The
Ichimoku Kinko Hyo is graphed over the
closing price line. The space between the
Senkou spans is called the Cloud, and is
usually graphed in a hatched pattern.
The Senkou Spans are support and
resistance lines. When the price is in the
Cloud, the market is non-trending. When the
price is above the Cloud, the higher Span is
the first support level and the lower Span
is the second support level. When the price
is below the Cloud, the lower Span is the
first resistance level and the higher Span
is the second resistance level.
Kijun-sen and Tenkan-sen are trend
indicators. When the price is above the
Kijun-sen, prices will likely continue to go
up, when the price is below the Kijun-sen,
prices will likely continue to go down. The
direction of the Tenkan-sen indicates the
direction of the trend. If the Tenkan-sen is
flat, the market is in a non-trending
channel.
The Ichimoku Kinko Hyo Japanese charting
technique was developed before World War II
with the aim of portraying - in a snapshot -
where the price was heading and when was the
right time to enter or exit the market. This
was all performed without the aid of any
other technical analysis technique (or
study).
The word Ichimoku can be translated to
mean "a glance" or "one look". Kinko
translates into "equilibrium" or "balance",
with respect to price and time, and Hyo is
the Japanese word for "chart". Thus,
Ichimoku Kinko Hyo simply means "a glance at
an equilibrium chart", providing a panoramic
view of where prices are likely to go and
the position one should undertake.
Invented by a Japanese journalist with a
pen name of "Ichimoku Sanjin", meaning "a
glance of a mountain man", Ichimoku charts
have become a popular trading tool in Japan,
not only with the equity market, but in the
currency, bond, futures, commodity and
options markets as well. The technique was
published over 30 years ago but has only
gained international attention within the
last few years.
The Ichimoku chart consists of five
lines. The calculation for four of these
lines involves taking only the midpoints of
previous highs and lows, similar to moving
average studies. Yet even with this
simplicity, the completed chart is able to
present a clear perspective of the price
action.
Ichimoku uses three key time periods for
its input parameters: 9, 26, and 52. When
Ichimoku was created back in the 1930s, a
trading week was 6 days long. These
parameters, thus, represent one and a half
week, one month, and two months,
respectively. Now that the trading week is 5
days, one may want to modify the parameters
to 7, 22, and 44.
Moreover, there are, in fact, different
levels of strengths for the buy and sell
signals of an Ichimoku chart. First, if
there was a bullish crossover signal and the
price, at that time, was trading above the
Kumo (or cloud), this would be considered a
very strong buy signal. In contrast, if
there was a bearish crossover signal and the
price, at that time, was trading below the
Kumo, this would be considered a very strong
sell signal. Secondly, a normal buy or sell
signal would be issued if the price was
trading within the Kumo when the crossover
took place. Thirdly, a weak buy signal would
be issued if there was a bullish crossover
that occurred while the price was trading
below the Kumo. On the other hand, a weak
signal would be issued if there was a
bearish crossover that occurred when the
price was trading above the Kumo.
Another striking feature of the Ichimoku
charting technique is the identification of
support and resistance levels. These levels
can be predicted by the presence of the Kumo.
The Kumo can also be used to help identify
the prevailing trend of the market. If the
price is above the Kumo, the prevailing
trend is said to be up. And if the price is
below the Kumo, the prevailing trend is said
to be down.
A final feature of Ichimoku is the Chikou
Span. This line can also be used to
determine the strength of the buy or sell
signal. If the Chikou Span was below the
closing price and a sell signal was issued,
then the strength is with the sellers,
otherwise it is a weak signal. Conversely,
if there was a buy signal and the Chikou
Span was above the price, then there is
strength to the upside, otherwise it can be
considered a weak buy signal. This feature
can also be incorporated into the other
signals.
Chinkou Span shows the closing price of
the current candle shifted backwards by the
value of the second time interval. The
distance between the Senkou lines is hatched
with another color and called 'cloud'. If
the price is between these lines, the market
should be considered as non-trend, and then
the cloud margins form the support and
opposition levels. If the price is above the
cloud, its upper line forms the first
support level, and the second line forms the
second support level. If the price is below
cloud, the lower line forms the first
opposition level, and the upper one forms
the second level. If the "Chinkou Span" line
traverses the price chart in the bottom-up
direction it is signal to buy. If the "Chinkou
Span" line traverses the price chart in the
top-down direction it is signal to sell. "Kijun-sen"
is used as an indicator of the market
movement. If the price is higher than this
indicator, the prices will probably continue
to increase. When the price traverses this
line the further trend changing is possible.
Another kind of using the "Kijun-sen" is
giving signals. Signal to buy is generated
when the "Tenkan-sen" line traverses the "Kijun-sen"
in the bottom-up direction. Top-down
direction is the signal to sell. "Tenkan-sen"
is used as an indicator of the market trend.
If this line increases or decreases, the
trend exists. When it goes horizontally, it
means that the market has come into the
channel.
Most traditional technical analysis
techniques are based on the open, high, low,
close or average price. Others may use
volatility while fixed scales such as
Fibonacci numbers have also been applied.
But the results are the same. Support and
resistance levels are always depicted as a
point or a line.
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