Ichimoku Kinko Hyo is a technical indicator that measures market momentum and market trend. It also determines and outlines the support and resistance levels. This indicator is more accurate for long timescales (such as the daily/weekly timescale).
The Ichimoku indicator consists of five lines:
1) Tenkan-sen - the average price level (High+Low)/2, calculated over the first time period;
2) Kijun-sen - the average price level calculated over the second time period;
3) Senkou Span A / Up Kumo= Senkou Span A = (Tenkan-Sen+Kijun-Sen)/2, shifted forward for the length equal to the Kijun-sen period;
4) Senkou Span B / Down Kumo - the average price level over the third time period, shifted forward for the length equal to the Kijun-sen period;
5)Chinkou Span – current closing price, shifted backwards for the length equal to the Kijun-se time period.
The "cloud" known as the "Kumo," is the space between "Senkou Span A" and "Senkou Span B."
Note 1: If the price stays above the cloud then there is an upward trend.
Note 2: If the price stays below the cloud then there is a downward trend.
Note 3: If the price is within the cloud then the market is flat.
Note 4: If the Tenkan-sen line moves sideways then the market is flat.
Methods of use:
1) When the price exits the cloud downward, it is a sell signal. When the price exits the cloud upward it is a buy signal.
Note 5: The price ranges before and after the cloud are often the same.
2) When Chinkou Span crosses the price line from below, it is a buy signal. When Chinkou Span crosses the price line from above, it is a sell signal.
3) When Tenkan-sen (red line) crosses Kijun-sen (blue line) from above it is a sell signal; if it crosses from below it is a buy signal.
Note 6: When the price is inside the cloud it tends to move in the direction of Tenkan-sen line (red line).
4) When the Tenkan-sen line is directed downwards, then the price tends to move to the lower edge of the cloud; if it is directed upwards, then the price tends to move to the higher edge.
Note 7: Kijun-sen (blue line) and cloud edges are very strong resistance/support levels.