Ichimoku Kinko Hyo

Today i want to introduce you guys to what i believe is the Best Indicator in the Market

"Ichimoku Kinko Hyo"

Introduction

The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a versatile indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals. Ichimoku Kinko Hyo translates into “one look equilibrium chart”. With one look, chartists can identify the trend and look for potential signals within that trend. The indicator was developed by Goichi Hosoda, a journalist, and published in his 1969 book. Even though the Ichimoku Cloud may seem complicated when viewed on the price chart, it is really a straight forward indicator that is very usable. It was, after all, created by a journalist, not a rocket scientist! Moreover, the concepts are easy to understand and the signals are well-defined.

Below Chart Shoes all Indicator on the Chart

Let take a look at what all the indicators on the Chart 

Tenkan-sen (Conversion Line): (9-period high + 9-period low)/2)) 
The default setting is 9 periods and can be adjusted. On a daily 
chart, this line is the mid point of the 9 day high-low range, 
which is almost two weeks.  

Kijun-sen (Base Line): (26-period high + 26-period low)/2)) 
The default setting is 26 periods and can be adjusted. On a daily 
chart, this line is the mid point of the 26 day high-low range, 
which is almost one month).  

Senkou Span A (Leading Span A): (Conversion Line + Base Line)/2)) 
This is the midpoint between the Conversion Line and the Base Line. 
The Leading Span A forms one of the two Cloud boundaries. It is 
referred to as "Leading" because it is plotted 26 periods in the future
and forms the faster Cloud boundary. 

Senkou Span B (Leading Span B): (52-period high + 52-period low)/2)) 
On the daily chart, this line is the mid point of the 52 day high-low range, 
which is a little less than 3 months. The default calculation setting is 
52 periods, but can be adjusted. This value is plotted 26 periods in the future 
and forms the slower Cloud boundary.

Chikou Span (Lagging Span): Close plotted 26 days in the past
The default setting is 26 periods, but can be adjusted. 

Down Trend

Up Trend

Bullish and Bearish Trend

Analyzing the Cloud

The Cloud (Kumo) is the most prominent feature of the Ichimoku Cloud plots. The Leading Span A (green) and Leading Span B (red) form the Cloud. The Leading Span A is the average of the Conversion Line and the Base Line. Because the Conversion Line and Base Line are calculated with 9 and 26 periods, respectively, the green Cloud boundary moves faster than the red Cloud boundary, which is the average of the 52-day high and the 52-day low. It is the same principle with moving averages. Shorter moving averages are more sensitive and faster than longer moving averages.

There are two ways to identify the overall trend using the Cloud. First, the trend is up when prices are above the Cloud, down when prices are below the Cloud and flat when prices are in the Cloud. Second, the uptrend is strengthened when the Leading Span A (green cloud line) is rising and above the Leading Span B (red cloud line). This situation produces a green Cloud. Conversely, a downtrend is reinforced when the Leading Span A (green cloud line) is falling and below the Leading Span B (red cloud line). This situation produces a red Cloud. Because the Cloud is shifted forward 26 days, it also provides a glimpse of future support or resistance.

Chart 2 shows IBM with a focus on the uptrend and the Cloud. First, notice that IBM was in an uptrend from June to January as it traded above the Cloud. Second, notice how the Cloud offered support in July, early October and early November. Third, notice how the Cloud provides a glimpse of future resistance. Remember, the entire Cloud is shifted forward 26 days. This means it is plotted 26 days ahead of the last price point to indicate future support or resistance.

Chart 3 shows Boeing (BA) with a focus on the downtrend and the cloud. The trend changed when Boeing broke below Cloud support in June. The Cloud changed from green to red when the Leading Span A (green) moved below the Leading Span B (red) in July. The cloud break represented the first trend change signal, while the color change represented the second trend change signal. Notice how the Cloud then acted as resistance in August and January.

Trend and Signals

Price, the Conversion Line and the Base Line are used to identify faster, and more frequent, signals. It is important to remember that bullish signals are reinforced when prices are above the cloud and the cloud is green. Bearish signals are reinforced when prices are below the cloud and the cloud is red. In other words, bullish signals are preferred when the bigger trend is up (prices above green cloud), while bearish signals are preferred when the bigger trend is down (prices are below red cloud). This is the essence of trading in the direction of the bigger trend. Signals that are counter to the existing trend are deemed weaker. Short-term bullish signals within a long-term downtrend and short-term bearish signals within a long-term uptrend are less robust.

Signal Summary

This article features four bullish and four bearish signals derived from the Ichimoku Cloud plots. The trend-following signals focus on the Cloud, while the momentum signals focus on the Turning and Base Lines. In general, movements above or below the cloud define the overall trend. Within that trend, the Cloud changes color as the trend ebbs and flows. Once the trend is identified, the Conversion Line and Base Line act similar to MACD for signal generation. And finally, simple price movements above or below the Base Line can be used to generate signals.

Bullish Signals:

• Price moves above Cloud (trend)
• Cloud turns from red to green (ebb-flow within trend)
• Price Moves above the Base Line (momentum)
• Conversion Line moves above Base Line (momentum)

Bearish Signals:

• Price moves below Cloud (trend)
• Cloud turns from green to red (ebb-flow within trend)
• Price Moves below Base Line (momentum)
• Conversion Line moves below Base Line (momentum)

Conclusions

The Ichimoku Cloud is a comprehensive indicator designed to produce clear signals. Chartists can first determine the trend by using the Cloud. Once the trend is established, appropriate signals can be determined using the price plot, Conversion Line and Base Line. The classic signal is to look for the Conversion Line to cross the Base Line. While this signal can be effective, it can also be rare in a strong trend. More signals can be found by looking for price to cross the Base Line (of even the Conversion Line).

It is important to look for signals in the direction of the bigger trend. With the Cloud offering support in an uptrend, traders should also be on alert for bullish signals when prices approach the Cloud on a pullback or consolidation. Conversely, in a bigger downtrend, traders should be on alert for bearish signals when prices approach the Cloud on an oversold bounce or consolidation.

The Ichimoku Cloud can also be used in conjunction with other indicators. Traders can identify the trend using the Cloud and then use classic momentum oscillators to identify overbought or oversold conditions. 

I Really hope that this Indicator will help understand the market Better!!

Remember: "ALWAYS TRADE SAFE"

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