How To Use The Ichimoku Kinko Hyo Indicator In MetaTrader 4 (MT4)

How To Use The Ichimoku Kinko Hyo Indicator In MetaTrader 4 (MT4)

Reading Time: 7 Minutes

The Ichimoku Kinko Hyo is a technical indicator that stands out because it looks at the market as a whole, showing key price movement and market trends. Originally developed by Goichi Hosoda, a Japanese journalist, this indicator's name translates to ‘one glance equilibrium chart’, aptly describing its ability to provide a quick understanding of the market's state at a glance. 

However, this indicator works best if the markets traded are characterised by well-defined trends. But when the market isn't moving much or is range bound, the Ichimoku Kinko Hyo indicator might not be as helpful. In these quiet or ‘ranging’ markets, it can be challenging to understand what the indicator is telling us. 

Another point worth considering is that the indicator can be used on all timeframes and across all financial instruments. The default settings (9, 26, 52) are a great starting point. Nevertheless, do not be afraid to tweak them based on the timeframe you're trading. Day traders might tighten these numbers for a quicker response, while swing traders may expand them for a broader view.

Getting Started 

Accessing the Indicator on MetaTrader 4 (MT4):

Open MT4.

Click 'Insert' in the upper toolbar, as illustrated below:

Navigate to 'Indicators', then 'Trend’ and select 'Ichimoku Kinko Hyo'. Leave everything else to default settings for now and click ‘OK’.

You'll be greeted with a series of lines and clouds on your screen (below). It can be intimidating at first, but each line serves the purpose of guiding you through the market's ups and downs. These components help show where support and resistance levels may unfold, as well as potential market trends.

Alternatively, to add the indicator, you can simply go to the Navigator Panel (CTRL + N), select ‘Indicators’ and drag and drop the indicator directly into the chart of choice. 

The Ichimoku Kinko Hyo Components:

The Ichimoku Cloud (Kumo Cloud): 

The Kumo Cloud is this indicator's most distinctive feature, offering a visual representation of support and resistance levels in the shape of a Cloud. The colours for all lines can be modified to suit preferences (right-click indicator > properties > colours). In the example below, the Cloud is coloured in orange and purple. 

Senkou Span A (Leading Span A [Kumo Cloud]):

The Senkou Span A is calculated by summing the Tenkan-sen and the Kijun-sen values and dividing the result by two. The resulting average value is then plotted 26 periods ahead, forming one edge of the Kumo Cloud.

Senkou Span B (Leading Span B [Kumo Cloud]):

The Senkou Span B is formed by adding the highest high and lowest low over the past 52 periods and dividing the result by two and subsequently plotting the result 26 periods ahead. This forms the other edge of the Kumo Cloud.

Tenkan-sen (Conversion Line [Red - Example Below]): 

The Tenkan-sen is calculated by summing the highest high and lowest low over the previous nine periods and dividing this result by two. 

Kijun-sen (Base Line [Blue - Example Below]): 

The Kijun-sen is calculated by adding the highest high and lowest low over the last 26 periods and dividing by two.

Chikou Span (Lagging Span [Green - Example Below]): 

This line is the indicator's hindsight, showing you where you've been. It offers a historical perspective by plotting the average closing price 26 periods back, aiding in understanding past market behaviour.

How to Use the Indicator: The Basics

The indicator can be used in a number of ways, including trend identification, locating support and resistance and generating buy and sell signals.

Price action trading north of the Kumo Cloud indicates a potential uptrend, suggesting bullish market conditions (Kumo Cloud turns orange). Conversely, price trading below the Cloud signals a downtrend or bearish conditions (the Kumo Cloud turns purple). What this means, for example, is that when the Senkou Span A is higher than the Senkou Span B, this helps identify uptrends, as shown below on the H1 chart of the USD/JPY currency pair. 

Another way traders use this indicator is to identify support and resistance at the Kumo Cloud. For example, the chart below (same H1 USD/JPY chart) shows price action in an uptrend. There were multiple occasions when the Kumo Cloud offered a support area to potentially trade from (many prefer to look for support in uptrends and resistance in downtrends).

For buy signals, these can be found when the Tenkan-sen crosses (red line) above (bullish) the Kijun-sen (blue line), while conversely, for sell signals, this is formed when it crosses below (bearish). The distance between these lines and their position relative to the Cloud further refine the signal's strength. As additional confirmation, you will find that some traders will wait for price movement to close beyond the Cloud following a crossover to initiate either a buy or sell signal. An example of this can be seen below (same H1 USD/JPY chart).

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