Ichimoku belongs to the legion of leading indicators due to its ability to predict support and resistance area even before price changes happen.

Among Metatrader4 platform's technical indicator list, you will find an indicator called Ichimoku Kinko Hyo. The indicator was used to gauge support and resistance levels, the direction of the trend, as well as entry and exit opportunities. Ichimoku belongs to the legion of leading indicators due to its ability to predict support and resistance area even before prices happen. Although less popular than other technical indicators, it actually has been used since 1970s.

 

The Ichimoku

Literally, Ichimoku Kinko Hyo means equilibrium chart at a glance. It consists of clouds and lines. The general theory is that if price is over the clouds then the trend is bullish; but if price lies under the clouds, then the trend is bearish. While the lines (Tenkan and Kijun) works like moving average crossovers. Ichimoku works well to detect breakouts and is suitable for longer time frames. Basic appearance of Ichimoku is as follows:

Ichimoku
The lines could be calculated manually as follows:

  • Tenkan Sen : (HIGHEST HIGH + LOWEST LOW)/2  (default period: 9)
  • Kijun Sen : (HIGHEST HIGH + LOWEST LOW)/2 (default period: 26)
  • Chikou Span : Close prices shifted 26 periods to the left (default)
  • Senkou Span A : (TENKAN SEN + KIJUN SEN)/2 (plotted 26 periods in the future)
  • Senkou Span B : (HIGHEST HIGH + LOWEST LOW)/2 (default period: 52; value plotted 26 periods in the future)

The clouds in the graph are shown in the shaded area between Senkou Span A and Senkou Span B.

However, to construct Ichimoku Kinko Hyo in Metatrader4, you do not have to count them one by one, you can simply click on the indicator menu list, go to trend, and choose Ichimoku Kinko Hyo.

Ichimoku
After clicking the link, a new window will appear bearing Ichimoku default setting, that is basic parameters of 9, 26, and 52.

Ichimoku
Basic parameters of 9, 26, and 52 used by Ichimoku is relatively normal, as the all-in-one indicator is usually used for longer periods, commonly in Hourly to Daily charts. Consequently, it is quite unsuitable for day traders and scalpers who might need indicators that work in shorter time frames. However, you can customize it to your needs by changing the parameters.

 

Senkou, The Cloud

The main feature of Ichimoku is Senkou, the cloud. If price  moves over the Senkou cloud, then it means prices are in uptrend, and the cloud will be the support in the current price movement. Contrarily, if price moves under the Senkou cloud, then it means prices are in downtrend, and the cloud will be the resistance in the current price movement. How if price moves exactly within the cloud? Well, it means prices are ranging, of course.

Senkou
Contrary to popular belief that support and resistance lives on as single lines, Ichimoku maintains that support and resistance are not simply lines but areas. That is why the Senkou cloud could widen and narrows. The cloud usually widen when the trend the trend has weaken and is going to come to an end.

 

Tenkan Sen and Kijun Sen

Tenkan Sen and Kijun Sen was calculated by dividing the sum of highest and lowest prices. The result is a highly sensitive lines which crossovers are capable to detect trend changes. As you can see below, after the red line (Tenkan Sen) crossed over the blue line (Kijun Sen), price no longer went downward but have started to move up instead.

Tenkan
Tenkan Sen and Kijun Sen also work double to confirm trends. If Tenkan Sen walks over Kijun Sen, then prices are in uptrend, while if the opposite happen then prices are in downtrend. Therefore, Ichimoku has two trend confirmators: the Senkou cloud and Tenkan Sen/Kijun Sen. The graph above was taken from H1 timeframe, so it was quite noisy. If you need a clearer picture, try using Ichimoku Kinko Hyo in Daily timeframe.

 

Chikou Span

Chikou Span actually is simply closing prices moved to the left as far as 26 periods. If we exchange the chart from candlestick to line chart, then we will see that Chikou Span values are exactly the same as the ongoing price.

Chikou
It is used to further confirm the position of the trend. If Chikou Span lies over the current price, then it means the uptrend is strong. While if Chikou Span lies under the current price, it means the downtrend is stronger.

Pretty smart, isn't it!? With all the clouds and lines that Ichimoku Kinko Hyo has, a trader does not need to use various technical indicators. As its name suggest, traders can get complete information at a glance. To master Ichimoku might be a bit difficult at first. But you will find that your studies and practices will not be a waste once you have done mastering it.