There are various indicators that are being traded on the forex market. One of them is Ichimoku Kinko Hyo. Maybe for some people, one of the indicators that we will discuss here feels less familiar. Therefore, we will learn more about what Ichimoku Kinko Hyo is. Ichimoku Kinko Hyo or often referred to as Ichimoku (Ichi Cloud) is a standard trend indicator that is included in the list of built-in indicators for metatrader and other platforms. For more details, you can read the article below.

What is the Ichimoku Kinko Hyo Indicator

Ichimoku Kinko Hyo or commonly referred to as Ichimoku (Ichi Cloud) is a standard trend indicator included in the list of built-in indicators for metatrader and other trading platforms. This Ichimoku forex trading system combines three technical tools in one Ichimoku Kinko Kyo (IKH) indicator for trading. Ichimoku Kinko Hyo is used to measure future price momentum and to determine future support and resistance zones for profitable trading. According to the history of Ichimoku, the term Ichimoku Kinko Hyo is based on Japanese. And if translated, it will be 'a glimpse of the graph in equilibrium'. With this name, Ichimoku becomes a Japanese forex analysis tool, which allows traders to analyze charts faster and more accurately. This trading indicator has also become a fairly busy system in the forex market, especially during the Asian trading session.

Ichimoku Indicator Function

There are also functions of the Ichimoku Kinko Hyo indicator, including:
  1. This Ichimoku indicator can be used on almost all types of tradable markets including futures, stocks, forex, options, stock indices, gold, and others.
  2. This indicator can also be used to make trading decisions at a glance. Including understanding price movements, momentum sentiment, and trend deficiencies.
  3. This indicator also shows a clearer picture because it can display more data points, making price action more useful. A technique that combines the best indicators into one chart, making decisions easier to make.
  4. The Ichimoku indicator is a trend-following charting trading system, so it works best when the market is trending well. This indicator will help identify the trend direction on the time frame used.
  5. Taking advantage of false breakouts that occur at the right price, which can help identify the trend direction on the time frame when trading.

Basic Formula of Ichimoku Indicator

Based on important points in the history of price movements over a certain period of time, the basic formula of the Inchimoku Kinko Hyo indicator can be seen as:
  1. Tenkan Sen: (highest high + lowest low)/2, with a standard period of 9.
  2. Kijun Sen: (highest high + lowest low)/2, with a standard period of 26.
  3. Chikou Span: The closing price and shifted back 26 periods.
  4. Senkou Span A: (tenkan sen + kijun sen)/2 then advanced by 26 periods.
  5. Senkou Span B: (highest high + lowest low)/2 of the last 52 candles then moved forward by 26 periods.
The Ichimoku indicator uses the default period setting of 9, 26, 52. This is because Ichimoku is used to analyze price movements in the long term or long periods. The general theory used in the Ichimoku indicator is that if the price is above the cloud, the trend will generally be bullish, and if the price is below the cloud, the trend will generally be bearish. If Kijun cuts Tenkan from below, then the signal is bullish and Tenkan cuts Kijun from below means a bearish signal. Because the Ichimoku indicator is available in the MetaTrader 4 software system, traders simply check the 'indicator' menu, click 'custom', and select 'Ichimoku indicator'.

How to Read Ichimoku Clouds

The Ichimoku indicator consists of several elements, namely three lines and two ichimoku clouds with different colors. The two Ichimoku indicators are separate tools that function as moving averages. However, they are not actually moving averages. The Ichimoku cloud line has several special features. The third line is a kind of isolator to filter trading signals. This cloud can go up or down with its color as a sign to indicate the current trend in the market.
  1. This Tenkan Sen (Rotary Line) is marked in red which has the average of the highest high and lowest low for the first period with a default value of 9. This Tenkan Sen shows the short-term trend and its changes. Traders use Tenkan Sen signals to enter short-term trades at the beginning of a trend reversal or immediately after the end of a correction to add to positions entered in the trend.
  2. Kijun Sen (Standard Line) marked in blue for the second period. The default value is 26. This Kijun Sen will show a more global trend, namely the medium-term trend.
  3. Senkou Span A (First Leading Line) and Senkou Span B (Second Leading Line). Line A calculates the average of Tenkan and Kijun values ​​plotted 26 periods ahead. Line B calculates the average of highest high and lowest low over the last 52 time periods. It also applies to plotted 26 periods ahead.
  4. Chikou Span (Lagging Line) is marked with a green line that calculates today's closing price projected back 26 days on the chart.
  5. This Kumo (Filled Zone) is commonly referred to as the Ichimoku Cloud. If Senkou A is below B, the zone will be purple, indicating a downtrend. While if Senkou A is above B, the zone will be orange, indicating an uptrend.

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The parameters of the Ichimoku indicator can be seen in three variables, namely, the tenkan period with a default value of 9, the kijun period with a default value of 26, and the senkou span B period with a default value of 52. For beginners, you can use the default settings because they are quite effective. Meanwhile, for those who have studied and are experts in this indicator, you can set the indicator parameters according to the current conditions. For example, in tenkan, you can set it to 5, kijun at 20, and senkou span B at 52. With this setting, you will get data that changes more dynamically, but not always better. However, this must be tested with the changed parameters by comparing the default values.

How Ichimoku Kinko Hyo Works

Ichimoku Cloud is designed to see direction and momentum to help you make buy and sell decisions more easily. You can also glance at the chart and see the trend direction and location of the price relative to the support/resistance levels so that you can later find the right pattern to enter a buy or sell trade. This tool is designed to analyze a fairly long time frame, daily and weekly Nikkei charts. Later, this algorithm is applied to forex chart analysis. To identify long-term trends, it is usually determined using the zones filled with the Ichimoku cloud. If the price is trading below the cloud, then the trend is down. And if the price ticker on the chart is trading above the cloud, then the trend is up. While the medium-term trend will be determined by the Kijun line, and the short-term trend will be indicated by the Tenkan line. When the price is above the Senkou Span, it can be said that the top line is the first support level and the bottom line is the second support level. And if the price is below the Senkou Span, the opposite applies that the bottom line is the first resistance level and the line above it is the second resistance level. Meanwhile, the blue line or Kijun Sen serves as an indicator of the upcoming price movement of the currency pair. If the price is higher than the blue line, then the price continues to move up or what is commonly called an uptrend. And if the price is lower than the blue line, then the price will continue to move down (downtrend). For Tenkan Sen is an indicator that functions to determine the trending market. If this red line moves up or down, it means the market is trending, and if it moves only horizontally then the market is ranging or consolidating. And finally, if the Chikou Span or green line crosses the price from bottom to top, then this is a signal to buy. And if it crosses the price from top to bottom, then this is a signal to sell.

Main Conditions for Ichimoku Trading

There are main conditions that we must follow to trade on Ichimoku. These conditions are:
  1. Since Ichimoku is a trend indicator, you can trade in the long term as indicated by the cloud color. Orange cloud signals buy entry, purple cloud signals sell trading.
  2. Stop loss should not exceed reasonable limits. You should follow trading in a calm market because by following sharp price movements on the daily chart, we will expect moments when the market returns to normal.
  3. Once the price reaches a significant extreme point on the daily chart, you should move the trade to breakeven.
  4. Stop loss will be set outside Kijun sen and Tenkan sen or outside the cloud, whichever is closer to the entry point. In more serious cases, stop loss will be placed outside the nearest local high/low if Tenkan Sen and Kijun Sen lines are too close to the current entry price.
  5. The reward/risk ratio will always be 2/1. So, the potential take profit is twice as large as the potential stop-loss. This can make it easier to set profit targets.

Ichimoku Kinko Hyo Trading Tips

Ichimoku Kinko Hyo download indicator is a kind of independent trading system. There are also tips and tricks on how to trade this Ichimoku Kinko Hyo indicator.
  1. Setting the Indicator. The Ichimoku Kinko Hyo trading method utilizes the trading indicator from Ichimoku itself. Or it can be interpreted as the only indicator needed by this trading strategy is Ichimoku itself. Some trading platforms will refer to the Ichimoku Cloud indicator. You can start by clicking on the indicator tab then selecting Ichimoku Kinko Hyo or Ichimoku Cloud then register. You do not need to make any adjustments but can apply the indicator in the default settings. You should also pay attention to the color differences between the various component lines as explained above.
  2. Pay attention to the price in relation to the kumo. Trading signal scanning can be started. The steps that can be taken are observing how the price behaves in relation to the kumo and cloud. If the price is in a fairly strong uptrend, it will shift from below to above the Kumo or cloud. While if the price is in a fairly strong downtrend, the price will shift from above to below the kumo.
  3. Pay attention to the price in relation to the Tenkan Sen and Kijun Sen. Your role is to make sure that the price is still trading in the same direction as you set on the kumo, so when doing so, the price should not be far from the Tenkan Sen and Kijun Sen. Please note, if the price is too far from these two lines, the signal becomes zero at that point.
  4. Observe the Tenkan Sen in relation to the Kijun Sen. Here you will observe how the Tenkan Sen will behave relative to the Kijun Sen. This also relates to whether the initial orientation of the signal is bullish or bearish. If the price shows a bullish orientation by moving from below to above the Kumo and also approaching the Tenkan Sen and Kijun Sen, then you can expect the Tenkan Sen to cross from below to above the Kijun Sen. While if the price on the other side shows a bearish tendency, then you can expect the Tenkan Sen to cross from above to below the Kijun Sen. If this does not match, then there will be a distorted signal.
  5. Observe Chikou Span in relation to price. Check the behavior of Chikou Span relative to price or not. A bullish signal should be able to pass the 4 steps above followed by a Chikou Span crossing from below to above the price. On the other hand, a bearish signal that has passed the 4 steps above should be followed by a Chikou Span crossing from above to below the price.
  6. Observe the Senkou Span A relative to the Senkou Span B. For a bullish signal that has passed the 5 steps above, then the Senkou Span A must cross from below to above the Senkou Span B. And if the bearish signal has passed the 5 steps above, then the Senkou Span A must cross from above to below the Senkou Span B.
  7. Observe the kumo in relation to the Tenkan Sen, Kijun Sen, and Chikou Span. By setting the signals as explained in the 6 steps above, you have set good bullish and bearish signals. Therefore, for any signal, the Tenkan Sen, Kijun Sen, and Chikou Span lines should not be in the kumo or cloud.
  8. Enter a buy or sell position. All bullish and bearish conditions must match the 7 steps above in order to enter a buy or sell position.
  9. Adjust your stop loss and take profit. You can adjust your stop loss depending on the pattern that triggered your entry. For most candlestick patterns, the stop loss for a long position is usually set just below the low of the triggering candle. The stop loss is also set just above the high of the triggering candlestick for a short position. For take profit, it can be projected using previous kumo levels that act as support or resistance.

After knowing what Ichimoku Kinko Hyo is, how it works, settings, and Ichimoku trading tips, it is hoped that you will be wiser to continue to find out other information before doing this trading. Also be careful about the company you will choose in doing this by continuing to find out other information. This is the discussion from GICTrade regarding the explanation of "Ichimoku Kinko Hyo, Standard Trend of Japanese Forex Analysis Tools". You can also find out other information about crypto, forex, and other finances, such as "Crisis" only in the GIC Journal. Also make sure you deepen your forex knowledge at GICTrade, via ebook scalping, and also NFP live trading.