Ichimoku chart trading strategy, also known as the Ichimoku Kinko Hyo, is a popular technical analysis tool used by traders to identify potential market trends, support and resistance levels, and potential buy and sell signals. Developed in the 1930s by Goichi Hosoda, the Ichimoku charting system uses a combination of trend indicators to provide a comprehensive view of the market.
The Ichimoku chart is made up of five components:
- Tenkan-Sen: A moving average of the price over a defined period, typically 9 periods. It is calculated by adding the highest high and lowest low over the previous 9 periods, and then dividing by 2. The Tenkan-Sen is used to identify short-term trend direction and potential reversal points.
- Kijun-Sen: A similar moving average of the price over a longer period, typically 26 periods. It is calculated by adding the highest high and lowest low over the previous 26 periods, and then dividing by 2. The Kijun-Sen is used to identify medium-term trend direction and potential support and resistance levels.
- Senkou Span A: This is the average of the Tenkan-Sen and Kijun-Sen, plotted 26 periods ahead. It is used as a forward-looking indicator of potential support and resistance levels.
- Senkou Span B: This is the average of the highest high and lowest low over the previous 52 periods, plotted 26 periods ahead. It is used to identify potential long-term support and resistance levels.
- Chikou Span: This is the current closing price, plotted 26 periods back. It is used to identify potential trend reversals.
By using all five components of the Ichimoku chart, traders can gain a comprehensive view of the market and potential trading opportunities. A bullish signal is generated when the price is above the Kijun-Sen and the Tenkan-Sen is above the Kijun-Sen. A bearish signal is generated when the price is below the Kijun-Sen and the Tenkan-Sen is below the Kijun-Sen.
In addition, traders can use the Senkou Span A and B to identify potential support and resistance levels, and the Chikou Span to confirm trend direction and potential reversal points.
Overall, the Ichimoku chart trading strategy is a popular technical analysis tool that provides traders with a comprehensive view of the market and potential trading opportunities. By using all five components of the chart, traders can identify potential trends, support and resistance levels, and buy and sell signals. However, as with any trading strategy, it is important to conduct thorough research and practice proper risk management techniques to minimize potential losses.