The very purpose of the Ichimoku Kinko Hyo technique is to be able to interpret a trend quickly and efficiently. Moreover, the name of this method literally means “balance of a curve at a glance”. It thus makes it possible to analyze and interpret market movements easily. However, this requires the ability to interpret, detect and translate signals into Ichimoku. Find out how:
Identify buy and sell signals
First of all, it is important to know that the Ichimoku method is used to detect signs of buying or selling. It allows you to know when to sell or buy, depending on whether the trend is bearish or bullish. These buy and sell signals are detected at the crossroads between the signal line and the trend line.
The purchase signal
When the value of the trend line is below that given by the signal line, it means a buy signal or when the price crosses the Kijun upwards. Also when the Tenkan crosses the Kijun on the rise.
The sales signal
Otherwise, when the value given by the trend line is higher than that of the signal line, it is a sales signal (the Tenkan crosses the Kijun downwards) or when the price crosses the Kijun downwards.
It should be noted that the lagged price line also plays an essential role. If there is a buy signal that this line is above the asset price, this confirms the signal and means that this is really the right time to buy.
In the case of a sales signal, the lagged price line also strengthens the signal when it is below the asset price. The trader can then be sure of his decision to sell.
Determine a bullish or bearish trend
The Ichimoku method is, without doubt, the ideal method to determine a trend at a glance. A simple graphical reading is enough to see whether the market trend is upwards or downwards. You just have to know how to delimit the cloud.
- The strong bullish signal
The bullish signal is strong when the price is above the cloud and the Chikou curve is above the price. The intersection between the Tenkan and Kijun curves must also be above the cloud for the upward trend to be confirmed.
- The average bullish signal
The bullish signal may also be average. This translates, as for the strong bullish signal, into a higher position of the price relative to the cloud, as well as a higher position of Chikou relative to the price. In this case, however, the intersection between the Tenkan and Kijun curves is in the cloud, rather than above it.
- The weak bullish signal
In the case of a weak bullish signal, decision making is particularly risky. The trend is bullish, but remains unstable. Here, the Chikou remains above the price, but the price is below the cloud. The intersection between Tenkan and Kijun is also below the cloud.
- The strong bearish signal
The bearish signal is strong when – unlike bullish signals – the price is below the cloud. Chikou is also below the price. And the crossing between Kijun and Tenkan is below the cloud.
- The average bearish signal
An average bearish signal is detected by a cross between Kijun and Tenkan located in the cloud. With a price below the cloud and a Chikou curve below the price. In this case, the direction of the future trend is not really confirmed, but the trader can nevertheless make a moderately risky decision.
- The weak bearish signal
And finally, as with the bullish trend, the bearish signal may also be weak. Here, the crossing between the Kijun and Tenkan curves is above the cloud, as is the price. The Chikou curve remains below the price.
By referring to these signals, the trader is thus able to determine a trend at a simple graphical glance.
However, a decision to buy or sell at any given time may depend on other criteria, depending on the trading style of each individual. The Ichimoku method is only used as an analysis tool. Remember that before looking at the indicators you should always base yourself on the price.
- 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