The indicators are basically designed to give out clear, unambiguous and distinct signals to help the trader decide correctly. Goichi Hosoda developed the Ichimoku indicator for Nikkei 225 in Japan. And now it is used in conjunction with the candlestick analysis approach which was not capable to estimate the entry and leaving levels or the market stops or the limit orders.
Ichimoku detects the trends that are generated in a market; the originating ones as well as the reversing trends. Nevertheless, Ichimoku indicator cannot be effectively used during flat markets as compared to ones with trends. So the indicator can be used to determine the status of the currency as to whether it is flat or with trends and if there are trends and the indicator can signal regarding the direction of trends.
Ichimoku indicator supplies sufficient information regarding the current market trends, their direction as well as the resistance and support levels. In the price chart, it is demonstrated through the use of five lines. Four of these five lines are used to present the midpoint of a defined time span’s price spectrum. The risky and favorable dynamics of the market can be interpreted with the aid of these lines.
The lines of the indicator
1. Tenkan-Sen Line: represents the average price for the first time span acquired by adding the high and low for the time when divided by two
2. Kijun-Sen line: represents the average time for second time span
3. Senkou Span A line: shows mid-point of the two lines that are preceding, and shifted forward for second time span
4. Senkou Span B line: indicates the average price for third span and shifted forward for second time span
5. Chinkou Span line: shows the closing price for a current candlestick and is shifted back for second time span.
‘The cloud’ is hatched in between the distance of the two Senkou lines. The color of the cloud relies on the position of the Senkou lines as to which is up in the chart at some particular time.
The fundamental signal the indicator gives out the price that crosses Senkou Span B line. When price crosses from top and moves downwards is an indication of opening sale and vice versa.
In case of a flat market, the price is estimated at’ the cloud’. Tenkan-Sen line crossing from top moving downwards indicates to open the buy orders while crossing from below and moving upwards suggest sell orders.
The market can be presumed to be stable when the short- or midterm Tenkan-Sen and Kijun-Sen come parallel to the Senkou Span B.
In case price is indicated in the cloud and it crosses the Chinkou Span line from the top and heads downwards, it indicated opening buy orders and vice versa.
The support and resistance lines are shaped by the Senkou Span lines in the ‘cloud’. In case resistance and support levels are higher than the lines then the Senkou Span A indicated the first while Senkou Span B indicates the second resistance.
The direction of Tenkan-sen line is basically the Inchimoku indicator. In case this line soars upwards this means the trend moves upwards, and if the line moves downwards, the trend shifts accordingly. And a parallel line suggests a flat market.