✔️ Information reviewed and updated in December 2023 by Eduardo López
Technical analysis indicators such as Ichimoku are key tools for cryptocurrency traders, which are applied with mathematical formulas to variables such as asset prices. These indicators can be added to trading charts for more accurate results.
The best indicator to operate in the world of trading is one that is very useful and can help us make better decisions. They are all important and can serve as an ally in confirming our strategies. In order to have a better analysis, the indicators can be combined.
In this article we will tell you more about the Ichimoku indicator, a technical indicator widely used by trading operators and that has become fashionable in recent years.
➡Ichimoku indicator definition
The Ichimoku indicator determines support and resistance levels, the strength and direction of the trend, and possible entry and exit points. It means "look at a chart in equilibrium" in Japanese. It is usually used on larger time frames than scalping or swing trading.
By having many components, this indicator becomes one of the most difficult when it comes to graphing. However, these components provide very good signals by acting as filters.
Its components are the following: Tenkan Sen (conversion line), Kijun Sen (baseline), Chikou Span, Senkou Span A, Senkou Span B, and Ichimoku Cloud (kumo). The latter represents a zone of support or resistance in the form of a range.
➡What is Ichimoku for?
Ichimoku is one of the most common and useful indicators for forex traders. Used to mark the direction of the dominant trend, show the momentum and strength of a trend, provide reliable support and resistance levels, and also give trading signals. It is based on moving averages with some modifications.
➡How is it obtained?
As we told you before, this indicator has five lines, which we are going to show you how they are calculated:
- Tenkan Sen (blue line). To calculate it, you have to add the highest maximum and the highest minimum of the last nine periods, and then divide the result by two. This line determines support and resistance levels, as well as a trend reversal.
- Kijun-sen (brown line). The highest high and lowest low of the last 26 periods must be added and divided by two. This line is implemented as a trailing stop loss point.
- Senkou Span A (orange line). To calculate it, you have to add the tenkan sen and the kijun-sen and then divide them by two. The result is then plotted 26 periods later. This line determines future support and resistance levels.
- Senkou Span B (red line). It is calculated by adding the highest high and lowest low during the last 52 periods. Then divide the result by two and plot 26 periods forward. Its function is in conjunction with the previous line, and it determines future areas of support and resistance.
- Chikou Span (green line). Represents the closing price of the current period symbolized by 26 periods ago. Its function is to find possible support and resistance levels.