Wednesday, October 23rd, 2013 by Tim Lanoue
Perhaps one of the most difficult and not practiced trading indicator would be the Ichimoku indicator. Just the name itself makes traders turn away with doubt that they could comprehend such an indicator. The Ichimoku indicator is solely a technical analysis indicator where fundamental analysis has no effect on it. Due to the fact that this is a visual indicator it allows the trader to easily identify the strength of an asset by simple examining the assets order flow.
Before we dive in deeper into the Ichimoku indicator it is important to understand that you need to be familiar with candlestick charting, if you are unfamiliar with what that is you can visit the Candlestick Charts Guide on this page. This is simply because one needs to understand the different candle types and trends that an asset can produce.
It is important to realize that this indicator may make you feel a bit overwhelmed and with time you will probably become more comfortable with the feel of the indicator. One of the advantages about this binary options indicator is that you can use this indicator by itself. Oftentimes traders may feel that the more indicators the better, however with the Ichimoku indicator one really does not need any more than this one indicator. This is partly due to the many parts that make up this indicator. Below is a picture of what the Ichimoku indicator looks like in action.
The Tenkan-sen line otherwise known as the conversion line as seen is displayed as the red line above, is similar to moving averages. The conversion line is calculated by taking the average of the high and lows of the assets price over the period of 6. The slopes shown in this line reflects the assets momentum.
The Kijun-sen line otherwise known as the base line is displayed as the white line above, it is also similar to a moving average. The base line is calculated over a period of 26 by averaging the buy and sell orders of the asset. The intersection of the conversion and base line are the key trading signals of this indicator.
The Chinko-span also known as the lagging span is composed of three components. The main component of the Chinko-span is the grey line shown above, it is responsible for measuring the markets direction. It is basically letting the trader know if the buyers or sellers are in control of the asset. The other two parts that make up the Chinko-span would be the light blue line and the yellow line that outline the Kumo cloud.
The Kumo cloud can be used in a variety of ways as a means to predict future direction and acts as a confirmation. The cloud area represents support and resistance while the width of the cloud represents volatility and the assets strength. If the price of the asset is below the cloud then that tells us that the asset is in a bearish trend while if the price of the asset is above the cloud then it tells us that the asset is bullish. If the cloud folds over on itself or becomes twisted that tells the trader that the asset is volatile and is changing directions drastically.
The Ichimoku indicator can be an overwhelming indicator but I hope today’s article help shed some light on this difficult indicator. If you are interested in applying this indicator as a strategy read my next article titled Binary Options Ichimoku Cloud Trading Pattern. For additional information on technical analysis indicators visit the Indicators Section.