Published around 1969 by journalist Goichi Hosoda, the Ichimoku Kinko Hyo is a technical analysis method widely used on Asian stock markets that is attracting more and more traders around the world. This tool is used on Japanese candlesticks and is based on 5 curves, each of which is a specific trend indicator. Discover the different Ichimoku curves and their interpretations to anticipate stock market movements:
The Kijun-Sen or Kijun curve is an indicator of the direction of the trend. It is the average of the lowest and highest of the last 26 periods. This curve indicates the future direction of the price and can be used alone to take a buy or sell position.
It is a line of balance, which can be used as a resistance or support. If the price is above the curve, it means that the trend is probably bullish. Conversely, if the price is below, it indicates a likely downward trend.
The Tenkan-Sen or Tenkan curve is calculated in the same way as the Kijun, but over the last 9 periods. It is, in a way, a “fast Kijun”. With a frequency about 3 times smaller than the Kijun, the Tenkan is mainly used as a signal curve.
This is a trend indicator that tracks prices more closely. In the case of a horizontal curve, this means that the market is in range. Otherwise, it indicates that the market is trending. If there is a significant difference between prices and the Tenkan curve, it may be an overselling or overbought. In this case, a correction movement is to be expected.
The Chikou Span or Chikou curve is the indicator of the last closing price over the 26 previous periods. To trace it, simply go back 26 days on the graph and mark the closing price. This curve is also called the lagged price curve or “lagging span”.
Chikou is often used by traders to confirm or deny a position. Interpretations may differ depending on the situation, but in general, you should never buy when the Chikou curve is below prices. If the curve crosses the price from top to bottom, it means that you have to sell. Otherwise, it indicates a purchase.
Senkou Span A
Often abbreviated SSA, the Senkou Span A curve is the first line that forms the “Kumo” point cloud. It corresponds to the average of the Kijun-Sen and Tenkan-Sen over the 26 periods ahead.
The Senkou Span A curve is the contour of the cloud and is also called “leading span 1”. Generally speaking, it serves as a support when the price is above the cloud and as a resistance when it is not. This curve makes it possible to determine the level of risk, thus offering the possibility of anticipating a purchase or sale.
Senkou Span B
Senkou Span B is the second contour of the “Kumo” cloud. Also abbreviated SSB, it corresponds to the average between the lowest and highest of the last 52 periods, projected over the 26 periods ahead. It is, in a way, a Kijun shifted forward, calculated over the 52 periods backwards.
The Senkou Span B curve is also called “leading span 2” and forms the other line of the “Kumo”. Like Senkou Span A, it is used to determine the level of risk. If the price is below the curve, the curve then serves as a resistance. In the opposite case, the curve is used as a support.
Kumo or cloud
The Kumo or cloud is the space between the Senkou Span A and Senkou Span B, regardless of the positions of these two curves. The thickness and shape of the cloud are indicators of price fluctuations. Generally speaking, the thicker the cloud, the more volatile the market. The position of the two contours A and B and the orientation of the cloud also serve as indicators.
In principle, the trend is downward when Senkou Span B is above Senkou Span A. It is upward when not. Respectively, the angle of the cloud is also downward and upward. Finally, it should be noted that the price position remains just as essential in the interpretation of the cloud. The Kumo can then be used as a support as well as a resistance, depending on the case.
- Ichimoku Special File (1/4) – Presentation of the Ichimoku Kinko Hyo indicator
- Ichimoku special file (2/4) – The different Ichimoku curves
- Special feature Ichimoku (3/4) – Wave theory in Ichimoku
- Ichimoku special file (4/4) – The different signals in Ichimoku