Ichimoku Kinko Hyo is a very useful indicator for diagnosing trends, support-resistance, etc. Although at first glance the indicator seems very complex. But when you know the rules of using the Ichimoku indicator, it will seem much easier.
Everything except the candlesticks in the chart above is part of the Ichimoku kinko hyo indicator:
Ichimoku Kinko Hyo Forex Indicator
The Ichimoku indicator consists of 3 lines and a cloud. Line 3 is:
- Tenkan-Sen (red)
- Kijun-Sen (blue)
- Chikou-Span (yellow / green)
The cloud-shaped part is called Kumo / Kumo / cloud. Many people are annoyed with the Ichimoku indicator because of these difficult names. These Japanese names are very difficult to remember. Since all 3 lines have different colors, it is easier to understand the colors of the lines instead of the Japanese names.
Now, look at the cloud shape of the chart. As long as the candlesticks are above this cloud, the pair can be considered as bullish / uptrend. Again, as long as the candlesticks remain below this cloud, the pair can be considered as bearish / downtrend. As long as the candlesticks remain in this cloud, nothing can be said for sure about that pair, i.e. the sideway/sideway trend. Because then the price of the pair may increase or decrease.
- Above the candle cloud = pair is bullish / uptrend
- Under the candle cloud = pair bearish / downtrend
- Inside the candle cloud = sideway
These Kumo or cloud lines often act as good support-resistance. It is often seen that as the price increases, it starts to decrease again after colliding with the cloud line (Resistance). Many times the price decreases and the cloud line (Support) starts to rise again. See in the chart below the red line of the cloud marked below the white line has acted as Resistance:
Look at the chart above, the price has started to increase and has started to decrease again after hitting the cloud line.
Now notice the chart Ichimoku Kinko Hyo Indicator:
The price suddenly started to fall and moved into the clouds. The red line of the cloud acts as a support as the price descends from the cloud. As a result, the price is interrupted and goes up again and starts rising.
One of the features of this Kumo or cloud is that the last cloud of the chart is formed on the other side of the last candle of your chart. Look at the chart above, some more clouds can be seen on the right after the last candle and the green cloud is being formed based on the latest bullish candle in the chart. So, looking at the green color of the clouds, we can understand that this pair may start uptrend in the future.
And by looking at the size of the clouds we can understand how strong the uptrend is and how long it can be. Thus looking at the cloud size of a pair in an uptrend we can understand how long it may take to go back to the downtrend again. Thus if the amount of cloud of a pair in an uptrend is gradually decreasing then we understand that maybe the uptrend of this pair is quite over and the downtrend may start soon. But no new trade decisions should be made right now. Because the price may go back again by hitting the cloud line.
Chikou-Span (yellow/green line):
Now we will discuss the 3rd line Chikou-span or yellow line of the Ichimoku Kinko Hyo indicator:
The yellow line of the Ichimoku indicator is called Chikou-Span. It can also be green on many charts at times. You can easily change the color of the line but our line is Yellow. If the candlesticks fall below Kumo or the clouds, then the downtrend does not start immediately. It is often seen that after being in or under the cloud for some time, it moves up again, i.e. the uptrend starts again. Similarly, at some point, it is seen that the candle pierces the cloud from time to time and then the candle moves again below or inside the cloud. In this case, the yellow/green line or Chikou-Span will help you to make the right trade decision.
Candlesticks have risen above the clouds, and after a while, the yellow line has also risen above the clouds. And later there was a strong uptrend in the market.
When the candle at number 2 penetrated the cloud and came down under the cloud, after a while the yellow line also started descending slowly towards the bottom. The yellow line at No. 2 did not move completely under the clouds. The downtrend is said to have started initially as the candles moved below the clouds, but when the yellow line moves completely below the clouds, we can expect a strong downtrend.
At first, many people have trouble understanding the position of this yellow line. The yellow line you see at the end of the chart is 25 candles on the left side.
This is the rule of Chikou-span i.e. yellow line. This line will always be 25 sticks before the last candle on your chart. When the new candle is made, the yellow line will also move a little to the right.
So far we have learned about Chikou-span (yellow/green line) and Kumo (cloud) of Ichimoku Kinko Hyo indicator:
As long as the candlesticks and the yellow line are above the cloud, the currency pair will remain bullish. In other words, the price of the currency pair will continue to rise. And as long as the candlesticks and the yellow line are below the cloud, the currency pair will be in bearish trend. In other words, the price of the currency pair will continue to decrease.
If both the candlesticks and the yellow line are in the cloud, then the currency pair is considered as a sideway trend. Then buy or sell should not be given, because it can go up or down at any time.
If at some point the candlesticks rise through the clouds from below, but the yellow line does not rise above the clouds, then those candlesticks can go down again at any time. Again if the candlesticks go down through the clouds from above but if the yellow line does not go down below the clouds, then those candlesticks can go up again at any time.
The line below the cloud often acts as a strong support line when a candlestick penetrates the cloud and descends from the top, and the line above the cloud often acts as a strong resistance line when a candlestick penetrates the cloud from below the cloud. .
Kijun-sen (blue line):
Now we will discuss the blue line of the Ichimoku Kinko Hyo indicator i.e. Kijun-sen:
The blue line of the Ichimoku indicator acts as a strong support and resistance line. When the candle is above this blue line, it is the support line and when the candle is below this blue line, it acts as the resistance line. But it acts as a strong support line when the blue line is above the cloud and the candle is above the blue line. Similarly, when the blue line is below the clouds and the candles are below this blue line, it turns into a strong resistance line.
Look at the chart above, the blue line rises above the clouds, then the price was rising. After a while, the candle crosses the blue line and rises to a fairly strong uptrend, and then the price rises by about 192 pips.
A feature of this line is that it acts as a magnetic line. That is, when a candle moves away from this blue line, this blue line gradually becomes parallel and quickly moves closer to the candlesticks.
So far we have learned about Kijun-sen (blue line) of Ichimoku Kinko Hyo indicator:
When the candlesticks are above the blue line, it is the support line and when the candlesticks are below the blue line, it acts as the resistance line.
If the blue line is above the cloud and the candlesticks are above the blue line, the blue line acts as a strong support line.
If the blue line is below the cloud and the candlesticks are below the blue line, the blue line acts as a strong resistance line.
Tenkan-sen (red line):
Now we will discuss the 3rd line Tenkan-sen or red line of the Ichimoku kinko hyo indicator:
This line changes direction very quickly compared to other lines. It works a lot like Moving Average.
When the red line is above the blue line, the price will increase. And when the red line is below the blue line, the price will go down. Again, if the blue line is above the cloud, the red line from the bottom crosses the blue line and rises to the top, then the pair is considered to have a strong uptrend. Similarly, when the blue line is below the cloud, if the red line from above crosses the blue line and comes down, then the pair is considered to have a strong downtrend. But such crossing charts are rarely seen, as most of the time the red line crosses the blue line before it emerges from the clouds.
Even then, if it crosses a second time when it is above or below the cloud, the trend can be seen as stronger.
Later I will show you how some trades can be done with the help of Ichimoku kinko hyo indicator.