The main theme of this chapter is to master the formulas for each line of the Ichimoku Kinko Hyo. Below is my basic concept when studying any indicators.
1. Remember the formula for an indicator. (Better be able to recall it at any time.)
2. Understand the meaning of the formula and understand what the technical analysis is trying to look at within the market.
3. Understand why the buy / sell signals of the indicator become a buy chance or a sell chance. You cannot say you can “use” an indicator unless you understand it this way.
Now, no indicator is 100% accurate. The technical indicator is effective as a whole, including fakes. If so, you must think of technical analysis as a fight against fakes, meaning you need to understand under what condition the indicator tends to give fake signals and therefore, need to be careful to take trades so that when the fakes really happen, you can expect those potential fakes correctly. And when it turns out to be a fake, you can immediately deal with it. But if it turns out to be non-fake, then you can take trade and grow your profits as much as possible. I believe this is the secret to become a technical analysis expert as a pro trader.
In general, most of the traders try to know what buy signals and sell signals are without understanding the formula of a particular indicator, and there is no chance to succeed in that way because when the signals work, you can earn profit but when they don’t work, you cannot deal with it. Then novice traders will say “the signals don’t work” although the real problem is where they do not understand how to use them correctly.
So, it’s always important to remember the formula. And don’t use indicators if you don’t remember. Above all, the formula of the Ichimoku Kinko Hyo is simple, that as Ichimoku Sanjin states, “even elementary school students can understand.” So, traders, please discard the image that the Ichimoku Kinko Hyo is difficult. It’s actually really simple. At a glance, you can capture trend and range.
* All candles in the Ichimoku Kinko Hyo are counted INCLUDING the current candle. There is nothing so complicated, right?
If you simply shift the current close price to 26 candles back, you get Chiko span. There is no such simple thing. The Senko span 1, which would be the most difficult to remember, is that you only take mid price of the Tenkan sen and the Kijun sen and forward it to 26 candles.
The formulas are not difficult, but you may just feel difficult because you don’t know why they are delaying or forwarding.
Often times Ichimoku Kinko Hyo is used in daily timeframe analysis but it is valid even for bigger timeframes such as weekly or monthly. It is also effective for smaller timeframes such as 5 minutes or 1 hour. Also, not only forex, it’s effective to Stocks, commodities, and Cryptocurrencies (Originally Ichimoku Kinko Hyo was invented for Stock analysis but now we know it works on any markets).
Basically, the settings of Ichimoku Kinko Hyo is fixed at 9 or 26 or 52 as default unlike other indicators. That’s because the numbers 9, 26, 52, etc. are significant in the market, just like Fibonacci numbers, like 38.2 or 61.8. There are cases when you can change the settings and compare with the original, like Chiko span, however, 9, 26, and 52 are the defaults and there is no need for general trades to change them around as it’s already powerful by itself.