This indicator was created by Japanese analyst Hosodai. The indicator got its name because Hosoda printed his materials under the name of Sandin Ishimoku.
The purpose of creating the Ishimoku indicator is to forecast the movement of the Japanese stock market index. The full name of the indicator is Ishimoku Kinko Hayo.
With the help of the indicator Ishimoku trader is able to determine the market trend, support levels and resistance levels, as well as signals to buy and sell a financial instrument.
According to the author, the Ishimoku indicator is best used on daily and weekly charts. One of the best strategies to us is Ichimoku Cloud – Finmax.
Ishimoku indicator consists of 5 lines:
- Tenkan-sen shows the average price value for the first period of time, defined as the sum of the maximum and minimum for this time, divided by two;
- Kijun-sen shows the average price value for the second time interval;
- Senkou Span A shows the middle of the distance between the previous two lines, shifted forward by the value of the second time interval;
- Senkou Span B shows the average price value for the third time interval shifted forward by the value of the second time interval.
- Chinkou Span shows the closing price of the current Japanese candlestick shifted back by the value of the second time interval.
The distance between the Senkou lines is shaded on the chart and is called the Ishimoku cloud. If the price is between these lines, the market is considered to be non-trend and the edges of the cloud form then the support and resistance levels.
If the price is above the Ishimoku cloud, its upper line forms the first level of support, and the second – the second level of support.
If the price is under the Ishimoku cloud, the lower line forms the first level of resistance, and the upper line forms the second level of resistance.
If the Chinkou Span line crosses the price chart from bottom to top, it is a signal to buy. If from top to bottom – a signal to sell.
Kijun-sen is considered the main line and is used as an indicator of market movement. If the price is higher than it, the prices will probably continue to grow. When the price crosses this line, further trend changes are likely. Another option for using Kijun-sen is to send signals. The signal to buy is generated when the line Tenkan-sen crosses Kijun-sen from the bottom up. The signal to sell is from top to bottom.
Tenkan-sen is considered a reversal line and is used as an indicator of the market trend. If this line grows or falls – the trend exists. When it goes horizontally – the market entered the channel.