Ichimoku Kinko Hyo, or Ichimoku indicator, is one of the standard distributions that is included in some trading platforms. It belongs to the category of technical indicators for the analysis of the Forex currency market. In the absence of a distribution kit in the terminal, it can be easily downloaded on the Internet. The trading tool is presented in the public domain.
History tour
The developer of the program is a trader from Japan, Goichi Hosoda. Developed back in the 30s, the Ichimoku indicator was originally adapted for trading in the stock markets in the long term. This is due to the fact that the advantage of investors was given to investing in stocks for a long time. The indicator analyzed market movements throughout the trading year. The indicator was used to analyze and forecast the Japanese stock market. After a while, the Ichimoku system was rebuilt for foreign exchange markets and began to show good trading results not only on weekly, but also on daily charts.
Description
Ichimoku indicator combines several options for market analysis. It is used to identify trends (with support and resistance lines inclusive). With its help, signals for the purchase and sale of various trading instruments are generated. A feature of the program is its unique ability to visually transmit information about the state of the market to a trader. The functionality of the program allows you to change the colors of lines and clouds. Each trader can choose the color scheme that they will easily perceive.
Structure of a technical analysis tool
The program is built on three time intervals, which differ in time: 9, 26 and 52. The lines based on average price values allowed us to develop the most accurate mechanism for market analytics. The distribution has some similarities with a tool like Moving Average. The differences are only in the set parameters. While moving averages use the arithmetic average of prices, the Ichimoku system is based on central indicators of the price range. This allows you to eliminate the problem associated with the lag of the indicator from the price chart.
Lines of ishimoku
The Ichimoku lines are the foundation of the entire distribution. As previously written, they are based on different time periods. A color scheme is built from five lines. The areas between two pairs of lines are shaded in different colors. The grid is superimposed on the price chart.
A detailed analysis of the market is carried out based on the location of the bars relative to the symbolism of the indicator.
- Tenkan-Sen is a trend reversal line, which with standard settings of the indicator is reflected in red on the price chart. The line allows you to define a short-term (short) trend. It crosses the average value of highs and lows of prices over a long period of time. If the line is directed up, the trend is up, and down - down. The parallel arrangement of the line indicates a flat.
- Kinjun-Sen is the main line, which, with standard settings, is blue in the chart. This is a long-term trend line that is calculated based on 26 time periods. The interpretation of the line is similar to Tenkan-Sen.
- Senkou-spen A is the middle between Kinjun-Sen and Tenkan-Sen. It is shifted forward by the size of the second time interval. It is indicated on the chart in sand color.
- Senkou-spen B is the average price reading for the third time interval. It is shifted forward by the volume of the second time interval. The graph has a pale purple color.
- Chikou-spen shows the price at which the current bar closed. The line is shifted by the volume of the second time period. The graph has a light green color.
Distribution options
The Ichimoku cloud is formed by the intersections of two lines: Senkou Span A and Senkou Span B. Depending on the direction of the intersection, the color of the cloud itself changes. When the price chart passes above the cloud, this indicates an upward movement. If the price is below the cloud - the downward movement. When the chart is superimposed on the cloud, a flat can be observed in the market. During this period, trading is accompanied by high risks.
The creator of the indicator set the following settings: 9, 26 and 50. He was guided by the following parameters.
For the daily chart:
- 9 - this is one and a half working weeks;
- 26 - the number of working days in a month;
- 52 is the number of weeks in a year.
For the weekly chart:
- 9 weeks is 2 months;
- 26 weeks is half a year;
- 52 weeks is a year.
A signal is generated if the indicator line and the closing price line intersect. Above are only generally accepted settings. The indicator is quite acceptable for individual adaptation to a specific strategy. In the hands of a trader who is inclined to bring any trading instrument to perfection, this system can show a decent result.
Ichimoku Settings
Ichimoku indicator is effective for analyzing the market situation with standard settings. Some traders practice using halved parameters: 5, 13, and 26.
Professional traders recommend the use of a number of other settings:
- For 15 minute schedules, 30 minute and hourly charts: 15, 60 and 120.
- For an hourly chart and a 4-hour chart: 12, 24 and 120.
- For the day: 9, 26 and 52.
As shown by many years of experience, the Ichimoku trading system provides maximum profitability on time frames for more than a day. Beginners should not change the settings of Ishamoku, as this will change the essence of the trading system, and its effectiveness may decrease.
Key Opening Signals
The popular Ichimoku strategy involves opening positions when the price crosses the Senkou-spen B line in the trending market. In the direction from top to bottom, a sell signal arrives. In the opposite direction - a buy signal. Signal gain occurs when the price leaves the cloud.
During the flat, when the cloud is wide enough, a buy signal arrives at the intersection of the Kinjun-sen line with the Tenkan-Sen line in the upward direction at the lower boundary of the cloud. The reverse is a sell signal.
Ichamoku indicator lines can be used as support and resistance. Open positions for rebound and penetration are considered highly appropriate. Combining the indicator with candlestick analysis is considered effective . If at the intersection of the short-term and long-term trend lines a pattern is formed, such as a pin-bar, or an absorption candle appears, you can open it according to the trading rules for candle analysis.
The formation of a long-term trend
The Ichimoku trading system allows you to determine the beginning of a strong trend movement. In a situation where a long-term trend line and a short-term one will take a direction parallel to each other and the Senkou-Spen line, this will be a signal for the formation of a strong and prolonged movement. When you roll back to one of the lines with an established trend, you can add positions. With an uptrend, the top position should be occupied by the Tenkan-Sen line, in the center - Kijun-Sen, and in the lower part of Senkou-Spen. In a downward movement of the price, the location of the upper and lower lines should be mirrored. The intersection of two trend lines in the language of traders is called the "golden cross". This is one of the strongest signals that major market players practice during trading.
Ichimoku as the basis of the trading system
The Ichimoku cloud is perceived by large market players very ambiguously. The presence of fans is offset by a similar number of opponents of the trend tool. In its pure form, the tool does not bring a large percentage of profit, somewhere in the range (30-40%). The main signals for currency pairs are rare, no more than 3-4 times a month.
If you use the indicator as a base, supplementing it with signals from other indicators and using PriceAction, you can achieve a good result. It will be useful to supplement the system with trade by levels. And finally. Like any other instrument, Ichimoku requires trend trading. Going against the market is not only risky, it is fraught with a loss of deposit. Therefore, signals that come contrary to the trend should be ignored. Pending orders are also allowed in this strategy . Reduce the number of losing trades will help the general fundamental analysis. By tracking interest rates, introducing an averaging policy, and statements by the heads of central banks, you can react in time to a trend reversal.
Pros and cons of the system
The main advantage of the strategy can be called the ability to determine the state of the market accurate to the candlestick: flat or trend. The accuracy and visual perception of the graph allows you to "bite off" a significant part of the movement. Lines react very quickly to the appearance of new vertices on graphs. They are not lagging, like moving averages. The only drawback of the tool is that if the Ichimoku cloud is small (narrow), you should not focus on any of the signals. In such a situation, the system performs poorly.
Recommendations from experienced traders
In order for the Ishimoku strategy to give a good ratio of profit and loss, you need to strictly follow the basic recommendations of experienced market participants:
- A technical stop order must be set in the range from 15 points to 80, depending on the currency pair. If the range of 15 to 30 points is the optimal stop for the euro and the dollar, for the pound it should vary between 30 and 80 points. This rule is relevant for small timeframes. If trading is carried out on a daily basis or on a weekly schedule, a stop order is set within the third or fourth level. It can reach 200 points.
- It is necessary to open deals on the indicator, starting from strong levels. You need to choose between the price cloud and the level, considering the option that is closer.
- The size of the stop order will directly depend on the target and timeframe. The recommended profit to loss ratio should be 1 to 5.
- If the trend is traded, the probability of triggering a stop order is only 20%. In counter-trend trading, the likelihood of a moose getting up is 80%.
- Under no circumstances should a stop be within the cloud. Thanks to the mastery of hedge funds, he can easily hurt while in the wrong position. The minimum stop size should be 5 points from the cloud.
The effectiveness of using Ichimoku in trading on the Forex currency market is also confirmed by the fact that analysts of dealing centers willingly use this tool to predict the movement of currency pairs. Predictions on this system are made for the long term. Jumping out and closing open deals during the day is categorically unacceptable. For effective trading, holding positions will take a week or even more. The tool will bring results in the hands of the trader who knows how to restrain emotions and is serious about the rules of money management. Beginners should not begin to analyze the market with this tool, you can choose simplified trading functions.