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Ichimoku Kinko Hyo

Ichimoku Kinko Hyo is a phrase in Japanese which translates as "Chart Equilibrium at a glance". it is a charting technique developed by a Japanese journalist, Goichi Hosoda, who wrote under the name "Ichimoku Sanjin" prior to World War II. It provides an indication of where the market is headed, and entry and exit points.

The Ichimoku consists of many different indicators which work with one another, these are very similar to moving averages and are based on high and low prices. These indicators are:

Tenkan Sen: the "conversion line", an average of the highest high and lowest low over 9 periods. (Red)
Kijun Sen: the "base line", similar to the Tenkan Sen but based over 26 periods. (Brown)
Chikou Sen: the lagging price, 26 periods ago. (Pink)
Senkuo Span: the shaded area between the two Senkuo lines. The first Senkuo line is (Tenkan-Sen + Kijun-Sen) / 2, plotted 26 periods ahead. The second Senkuo line is (Highest High + Lowest Low) / 2, for the past 52 periods, plotted 26 periods ahead. The area between these not only defines the trend but acts as support and resistance for price. This leads the current time by 26 periods. (Green/Blue shaded area)

There are many indications Ichimoku helps with. In general, if price is above the Senkuo span, then the trend is higher, and vice versa. Tenkan Sen crossing above the Kijun Sen is a bullish signal and below is bearish. The positions of Tenkan Sen and Kijun Sen with respect to the span is also important - if the price 26 periods ago is below the Chikou Sen and a sell signal occurs, it is a stronger signal than had it been above the close of 26 periods ago, and again vice versa.

Ichimoku uses three key time periods for its input parameters: 9, 26, and 52. When Ichimoku was created back in the 1930s, a trading week was 6 days long. These parameters, thus, represent one and a half week, one month, and two months, respectively. Now that the trading week is 5 days, one may want to modify the parameters to 7, 22, and 44. You can do this by editing the study parameters to 7 and 22 - the third parameter is always double the second (ie 52 when it is 26, or 44 when it is 22)

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