How to Trade Forex with Ichimoku: Introduction

ichimoku

Ichimoku Kinko Hyo or Ichimoku for short, is a trend following indicator that has been created by a Japanese named Goichi Hosoda. He made a book about the indicator in 1968. But since the lack of translation to other languages, very few traders knew of its existence and for a long time, it has been treated as one of those “exotic” indicators that never really given the time to shine. Just until recently that this indicator proved to be very powerful.

Why Use Ichimoku?

Ichimoku has been used extensively to trade forex / currencies, commodities, futures and stocks. In other words, it can trade any market with no problem.

The word Ichimoku Kinko Hyo means “Equilibrium chart at a glance”, where the components of ichimoku works with each other that gives the trader a visual representation of the price action. A simple look at the chart with the ichimoku indicator will allow the trader to have an immediate understanding of sentiment, momentum and strength of trend.

5 Basic Components of Ichimoku

The ichimoku indicator has 5 basic components. A trader must know very well what each of these components do to maximize the power of this indicator. Each component is an indicator of its own and a lot of traders turn off the other components for preference. But if you really want to maximize its potential, I recommend to get to know each component and use all of them.

ichimoku

  1. Tenkan Sen which means “Turning Line” takes 9 periods
  2. Kijun Sen which means “Standard Line” takes 26 periods
  3. Chikou Span which means “Lagging Line” takes 26 periods but time-shifted backwards.
  4. Senkou Span A, first leading line, time-shifted forwards (into the future) 26 periods.
  5. Senkou Span B, second leading line, for the past 52 periods time-shifted forwards (into the future) 26 periods.

I know what you’re thinking. You’re probably thinking this doesn’t make much sense. And I agree with you. The first time I knew about these periods and time shifting thing, I got confused. But trust me for now and it will all be clear later.

We need to memorize the periods so that when you get into a trading platform from your forex broker, you’ll be able to set your ichimoku indicator to default values.

That’s all for now, for the next lesson, we’ll go through each one of this components. If you have any questions, please feel free to comment below.

  • richard

    Is it true that all indicators are lagging?

  • ForexPhil

    Good question. All indicators are lagging. But ichimoku in particular tries, and I mean the word “try” to solve that problem by shifting the senkou spans forward (future). I’ll try to explain it in the future lesson on how ichimoku predicts the future.

  • Ritche

    very interesting…