Currency Trading with Ichimoku Kinkou-Hyo
The Ichimoku Kinkou-Hyo is a technical study that was developed by a Tokyo newspaper writer, Goichi Hosoda, before World War II as a self-standing forecasting method for all financial markets. The name is a bit of a mouth-full, so many traders only call it Ichimoku, but in loose translation the full name means “One-look at the equilibrium prices.” The name originated with Hosoda’s pen name "Ichimoku Sanjin," which means a glance of a mountain man. This technical study consists of gauging midpoints of historical highs and lows at different lengths of time and several time lengths matched those used in the MACD’s moving averages. Ichimoku provides another method of analyzing trends and brings additional points to retracement/extension analysis, and support and resistance from moving averages.
The Ichimoku system consists of five lines: Kijun, Tenkan, Chiku, Senkou Span A and Span B. (See an application of this method as applied on the daily euro/dollar chart in Figure 1)
caption: Figure 1. Example of the complete Ichimoku system and its five lines: Kijun, Tenkan, Chiku, Senkou Span A and Span B as applied to the daily euro/dollar chart.
Kijun (Trend Line)
Kijun means trend in Japanese. Consequently, if the trend line is heading down, then this gives a selling signal and if the kijun line is advancing, then this suggests a buying signal. See only the trend line plotted on the daily euro/dollar chart in Figure 2.
caption: Figure 2. Application of the Ichimoku’s trend line (Kijun) on the daily euro/dollar chart.
The formula for the Kijun line is calculated as follows:
Trend (Kijun) Line = (highest high+ lowest low)/2 for the past 26 days.
If using only this trend line, the results tend to be mixed at best. There are three areas of strength on this chart and they are identified by blue rising arrows and three declines are marked with red declining arrows. The main direction on the entire daily chart is a down, but the width of the channel is very wide.