Littlefish FX Analysts
Littlefish FX
Ichimoku Kinko Hyo (often refered to as Ichimoku or simply Ichi), is a method of technical analysis developed by a Japanese journalist. Here’s everything you need to know about it…
Advantages of using Ichimoku
Ichimoku merges three indicators on one graph to provide a clear picture of the market. It simultaneously provides the trader with an eye on previous price trends, clear cross-over points to initiate a position, as well as an indication on the strength of the entry points.
It is a technique which really utilises the power of information, allowing the trader to make very well informed decisions.
Let’s jump in at the deep end…
At first sight the combination of three indicators on one graph can be a little overwhelming, but it’s a good idea to simply have quick glance at a Ichimoku graph featuring all three indicators. This will give us something to dissect – one indicator at a time – as well as something to refer back to.
Understanding the three indicators
Kijun-Sen & Tenkan-Sen
Below is the very familiar candlestick chart, with the addition of a red line (Tenkan-Sen) and a blue line (Kijun-Sen); these are our first indicators.
The first thing to understand is that a red over blue line indicates a bullish market, and a blue over red line indicates a bearish market.
However the most critical thing the Tenkan-Sen & Kijun-Sen lines reveal is a clear cross-over point; this is the point at which a trader should consider initiating a position.
Chikou Span
The Chikou Span is represented in the initial graph (and the graph below) by a purple line. When this sits above the price line, it is a bullish market. When it sits below the price line, it is a bearish market.
The Chikou Span is directly translated as the lagging line. This is because it is not an up-to-date indicator and always lags at least 24 candles behind the current price – see above.
It is intended to give the trader an eye on previous price trends and give a clue to any potential upcoming trends. For example, if the current close price is lower than 24 candles ago, it would indicate that there is a more bearish price action to come and vise versa.
Clouds
This is potentially the most important indicator of the of Ichimoku strategy.
As with the previous indicators, the first thing to understand is that price above the cloud indicates a bullish market, and price below the cloud indicates bearish. Anything inside the cloud is considered neutral, as resistance is being tested.
The cloud is a measure of support and resistance and is used to identify potential breakout points. It becomes extremely powerful when it is used alongside the cross-over points provided by the red and blue lines of the Tenkan-Sen & Kijun-Sen.
Note that a cross-over point is the point at which a trader should consider initiating a position.
Below is a graph featuring all three indicators.
The first cross-over which takes place indicates an upward trend (red crosses over blue), which is supported by the graph. The cloud gives the trader further insight as the cross-over takes place at the bottom end of the cloud (bottom end of resistance), which indicates that the upward trend will have average strength.
A cross-over below the cloud indicates weak strength, and a cross-over above the cloud is the strongest indicator, as it is clear of resistance.
Hopefully this hasn’t been too confusing due to the various components of the strategy, but its almost fool-proof indicators will allow you to capture some very profitable trends.
All comments, charts and analysis on this website are purely provided to demonstrate our own personal thoughts and views of the market and should in no way be treated as recommendations or advice. Please do not trade based solely on any information provided within this site, always do your own analysis.
Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Japanese Yen adds to strong gains and drags USD/JPY to 155.00 amid hawkish BoJ bets
The Japanese Yen extends its steady intraday ascent through the Asian session on Monday, dragging the USD/JPY pair to the 155.00 psychological mark in the last hour. Against the backdrop of the recent shift in rhetoric from Bank of Japan Governor Kazuo Ueda, an improvement in business confidence reaffirms market bets for an imminent rate hike this week.
Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD edges higher toward 1.3400 ahead of US data and BoE
GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.
Gold pulls away from session high, holds above $4,300
Gold loses its bullish momentum and retreats below $4,330 after testing $4,350 on Monday. XAU/USD, however, stays in positive territory as the US Dollar remains on the back foot on growing expectations for a dovish Fed policy outlook next year.
Solana consolidates as spot ETF inflows near $1 billion signal institutional dip-buying
Solana price hovers above $131 at the time of writing on Monday, nearing the upper boundary of a falling wedge pattern, awaiting a decisive breakout. On the institutional side, demand for spot Solana Exchange-Traded Funds remained firm, pushing total assets under management to nearly $1 billion since launch.
Big week ends with big doubts
The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.
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