The Ichimoku method, also known as the Ichimoku Kinko Hyo, is a popular technical analysis tool used in trading financial markets, particularly in Japan. The name “Ichimoku Kinko Hyo” can be translated to “one glance equilibrium chart”, which emphasizes the method’s ability to provide traders with a comprehensive view of price action at a single glance.
The Ichimoku method consists of several components, including:
- Tenkan-sen: A moving average calculated over the past 9 periods.
- Kijun-sen: A moving average calculated over the past 26 periods.
- Senkou Span A and B: Two lines that form a cloud, or “kumo”, on the chart. Senkou Span A is calculated by taking the average of the Tenkan-sen and Kijun-sen, and plotting the result 26 periods ahead. Senkou Span B is calculated by taking the average of the highest high and lowest low over the past 52 periods, and plotting the result 26 periods ahead.
- Chikou Span: A lagging line that represents the current closing price, plotted 26 periods behind.
Traders use the Ichimoku method to identify trend direction, support and resistance levels, and potential trading opportunities. For example, if the price is above the kumo, it may indicate a bullish trend, and if the price is below the kumo, it may indicate a bearish trend. The intersection of the Tenkan-sen and Kijun-sen lines may also provide buy or sell signals. However, as with any technical analysis tool, it is important to use the Ichimoku method in conjunction with other indicators and analysis techniques to make informed trading decisions.
This is an excellent explanation and history of the Ichimoku Method from MetaStock.
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