Posts Tagged ‘Chinkou Span’

01.10.2010 Post in Trading

Any indicator, giving signals, is aimed at helping a trader to make a correct decision. The indicator is to provide clear and distinct signals so that they did not appear ambiguous to a trader.

The Ichimoku indicator was developed in Japan by Goichi Hosoda for Nikkei 225. Today this indicator is combined with Japanese candlesticks’ analysis due to the inability of the latter to determine market entrance and withdrawal levels and also market stop and limit orders.

Ichimoku is a trend indicator, detecting the generating trend, the one that has just originated and the reversing one. However, the Ichimoku indicator is not as effective for a flat market than for a trend one. Using this indicator, a trader can determine the currency status: flat or trend and the direction of the movement.

The Ichimoku indicator provides much information about the existing trend, its direction, support and resistance levels. It is represented by the five lines on the price chart. Four of them show the mid-point of the price spectrum for a certain time span. These lines can be also interpreted as the border line between bull and bear dynamics of the market.

The indicator’s lines:

  • Tenkan-sen (red line) shows an average price for the first time span, seen as the sum of low and high for this time span divided by two.
  • Kijun-sen (blue line) signifies an average price for the second time span.
  • Senkou Span A (yellow line) indicates the mid-point between the two preceding lines, shifted forward for the second time span.
  • Senkou Span B (brown line) shows an average price for the third time span, shifted forward for the second time span.
  • Chinkou Span (green line) indicates the price at which the current candlestick has been closed has been shifted back for the second time span.
The distance between Senkou lines is hatched in another colour, depending on which line is
situated above, and called ‘the cloud”.

The distance between Senkou lines is hatched in another colour, depending on which line is situated above, and called ‘the cloud”.

ishimoku

The key signal given by this indicator is the price crossing Senkou Span B line. The price crossing it from top downward is a signal to open a sell order and vice versa.

If the market is flat, the price is detected in the hatched area of the indicator. Crossing Tenkan-sen line from top downward suggests opening buy orders and vice versa.

If the mid- or short-term lines of Kijun-sen and Tenkan-sen are parallel to Senkou Span B it means that the market is being stable.

If the price is displayed in the hatched area and crosses Chinkou Span line from top downward, buy orders can be opened and vice versa.

Senkou Span A and Senkou Span B lines shape the resistance and support line in the hatched area. If the levels are higher than these lines then Senkou Span A and Senkou Span B lines are the first and the second resistance correspondingly.

The Ichimoku indicator signal is the Tenkan-sen line direction. If the line surges, the trend uprises; if it falls, so does the trend. If the line is parallel then the market is flat.

Added by Dmitry Antipov,
InstaForex Clients’ relationship manager