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The Ichimoku technical indicator was created by Goichi Hosoda, a Tokyo newspaper writer, and published in the 1960s. it has a collection of technical indicators that show the level of support and resistance as well as the direction of trends. It gives more data points than the standard candlestick chart. This action is performed by plotting multiple averages on a chart. Also, it built up a cloud that forecasts where the price may find support or resistance in the near term.
Currently, the indicator is used by many Japanese trading rooms because it offers a higher probability of trades.
How to locate the Ichimoku Kinko Hyo Indicator on the MT5
This indicator is made up of four basic components which offer fundamental insights into forex market price action.
- The Tenkan Sen: this component is calculated as the sum of the lowest low and the highest high divided by two. It takes the initial nine time periods calculation
- The Kijun Sen: this component is calculated as the sum of the lowest low and the highest high divided by two. It takes the past 26 periods into account in its calculation.
Basically, traders see the crossover to take a position. The example below is a clear description of the crossover of the Tenkan Sen (line color) and the Kijun Sen (line color). This signals an uptrend given that near-term prices are ascending above the longer-term price trend.
Figure 1: Ichimoku Tenkan-sen crossover
3. The Ichimoku Cloud: The third component of the Ichimoku is the most vital and it forms the cloud component which represents current and historical price action. It helps build formative barriers that act as simple support and resistance.
- The Senkou Span A: the calculation of the Senkou Span is plotted 26 time periods ahead of the current price action. It is the sum of the Tenkan Sen and the Kijun Sen divided by two.
- Senkou Span B: the calculation of the Senkou Span B has plotted 26 periods ahead and takes over the past 52 time periods.
So, when Senkou Span A and Senkou Span B are plotted on the chart, the area between the two lines is referred to as the cloud. The cloud gives traders detailed filter of the market. Instead of offering traders a plainly thin price level for support and resistance, the thicker cloud will tend to take the volatility of the currency markets into consideration. when there is a break above or below the cloud, it suggests propound and more profitable trade.
Figure 2: Ichimoku break opportunity
In figure 2 above, the Ichimoku cloud provides a better trade opportunity on a break to the upside. Here, price action was offset and the overall market was set in an uptrend momentum. The Tenkan-sen and Kijun-sen, and the price stay relatively high above the cloud. This is a big indication of an uptrend market.
4. The Chikou Span: this is the last component of the Ichimoku indicator and it is viewed as simply the market sentiment. The calculation is done using the most recent closing price and plotted 26 periods behind the price action. Basically, it points to the market’s sentiment by indicating the prevailing trend as it correlates to the momentum of the current price. Reading the Chikou span is pretty simple: as sell-off continues to trigger the market, it will hover below the trend of the price. Also, on the buy-side, when higher demand is triggered on a specific trading instrument, the span will move to the upside and hover beyond the price action.
Figure 3: the Ichimoku Chikou span driven by the market sentiment.