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Ichimoku Kinko Hyo is a technical trend trading charting system that has been used by Japanese commodity and stock market traders for decades and is gaining increasing popularity amongst western stock market traders, being commonly referred to as Ichimoku Cloud charts.
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The Ichimoku Kinko Hyo charting system, which translates to "equilibrium at a glance chart", was developed by Goichi Hosoda, a Japanese journalist, who wanted to build a system to allow a trader to quickly and easily appraise trend, momentum, and support and resistance levels. He began developing the system before World War II and it was published in 1968, after over twenty years of testing.
The Ichimoku chart is made up of five separate elements which are designed to be considered together as a complete picture to provide a perspective on the equilibrium of the current price. These are:
The area between the two Senkou Spans is called the Kumo (Cloud).
It should be noted that several of the chart elements use the average of the highest high and lowest low over a period, and therefore represent the mid-point of the range of prices over that period. This is considered to provide a better visualisation of trend, momentum, and support and resistance levels than just using an average of closing prices.
It should be stressed that no chart element should be considered in isolation; the chart should be viewed as a whole with all elements taken into account, and intepretations should be regarded as probabilistic, rather than predictive.
(Highest high + Lowest low) / 2 over the last 9 trading days.
(Highest high + Lowest low) / 2 over the last 26 trading days.
(Tenkan Sen + Kijun Sen) / 2 plotted 26 days ahead.
(Highest high + Lowest low) / 2 over the last 52 trading days plotted 26 days ahead.
The area between the two Senkou Spans.
The closing price plotted 26 trading days behind.