While many technical indicators serve a very specific purpose and should be used in conjunction with other indicators to ensure that you receive reliable market readings, there is a very interesting strategy that involves only one indicator called “One Look” or simply Ichimoku. Developed by a Japanese analyst and journalist, this instrument is a highly advanced tool in the arsenal of a beginner trader without any background in financial markets.
Why is Ichimoku efficient when used by novices?
Using multiple indicators at one while trying to fine-tune their performance over a long period is something that can be done by experienced retail traders who have the required expertise and knowledge about technical indicators. Since many newcomers to the Forex industry have to focus on learning them one by one, it is only natural that it takes both time and effort for a novice to learn them.
Those who use Ichimoku want to start online trading quickly while using an indicator that covers all aspects of technical analysis: trend identification, measuring momentum, and forecasting support/resistance levels. It is a versatile tool that allows many to bypass learning how traditional indicators interact and work together.
For example, a typical strategy used by an FX retail trader may include:
- Relative Strength Index. This indicator is used to measure the strength of any trend. It is often used to quickly find potential trend reversals.
- Moving Averages are used to identify the current trend in the market and simplify the candle chart to see the big picture.
- Volumes that are used to confirm the potential trend reversal. It is often used by experienced traders to eliminate entry points that will unlikely result in a profitable trade.
More sophisticated strategies may also involve a variety of complementary instruments such as Stochastic, MACD, Bollinger Bands, and many other tools. These indicators are often employed to complete the picture and provide a more precise forecast about price dynamics.
These indicators must be learned individually so that a trader could make informed decisions based on an analysis of multiple factors that come into play when the price direction is determined. However, each indicator has multiple settings and each option must be studied separately to ensure that you can fine-tune an indicator according to your needs.
If you do not have time to learn all of them, but you still want to see the full picture and see how the market will develop in the nearest future, using Ichimoku Kinko Hyu is a good idea.
Using the Ichimoku indicator
This particular instrument is one of the most versatile tools in your arsenal. It may look intimidating and overly complicated at the first glance, but you just need to understand what various values of the indicator mean.
There are five main elements of the interface corresponding to important formulas:
- Tenkan-sen is the conversion line that combines data on high and low prices during the last nine intervals and divides it by two showing you relevant support/resistance lines.
- Kijun-sen is overlaid on top and shows the baseline using the same formula but for the last 26 intervals allowing you to confirm a trend.
- Senkou Span A takes two values from Tenkan- and Kijun-sen combines them, and divides them into two. The result is used to show future support/resistance levels.
- Senkou Span B uses the calculation formula of Tenkan-sen but over a longer frame of 52 periods. The result is overlaid over Span A.
- Chikou Span shows you the relationship between the latest close price and the last 26 intervals on the price chart.
The combination of these tools allows a trader to make an informed forecast, identify strong support and resistance levels, and conduct a multidimensional analysis of price dynamics.
The main takeaway
Ichimoku is a very interesting analytical tool that has many advantages over traditional indicators, especially if they are used as standalone sources for decision-making. However, even this powerful tool must be used together with more indicators like RSI or MACD. Read more about forex and crypto news.