Trader's Glossary

Ichimoku Kinkō Hyō

Ichimoku Kinkō Hyō, often abbreviated to just Ichimoku, is a technical indicator developed by Japanese journalist Goichi Hosoda in the late 1930s. It is used to provide information on trend and momentum as well as support and resistance. Ichimoku is widely used by Japanese traders but is gaining in popularity among western traders owing to the density of information it is able to provide without the use of additional indicators.

Ichimoku is comprised of five lines:

1.Tenkan-sen (usually a red line), which is a 9 period moving average determining trend as well as support and resistance.

2. Kijun-sen (usually a blue line), which is a 26 period moving average used to indicate potential future price action. If price action is taking place above this line it may continue to trend upwards, if below this line it could continue to trend downwards.

3. Senkou Span A, which averages out the 9 and 26 period moving averages of Tenken-sen and Kijun-sen and plots the result 26 periods ahead.

4. Senkou Span B, a 52 period moving average that is plotted 26 periods ahead.

The area between span A and span B is called the Kumo (cloud), and is shaded. Thick clouds represent higher volatility and more robust support/resistance levels. Thinner clouds represent decreased volatility and weak support/resistance. When Span A is above Span B the underlying market is considered bullish, when Span B is above Span A the underlying market is considered bearish. When Spans A and B cross it is regarded as a signal of an imminent trend reversal.

5. Chinkou Span (usually a green line), which plots current closing prices 26 periods behind and is used to generate signals as well as support/resistance levels. When Chinkou crosses current price action from bottom up it is considered a signal to go long. When it crosses current price actions from top down it is considered a signal to go short.

The focus on 26 period data in Ichimoku Kinkō Hyō is derived from the typical working month of a Japanese employee in the 1930s being 26 days long.