The Ichimoku Kinko Hyo or 'equilibrium at a glance' chart highlights higher probability trades in Securities markets. It is relatively new to Western Technical Analysis, but it's popularity has been increasing amongst financial markets traders.
Ichimoku charts applies a series of indicators on one chart, allowing traders to assess price action in three time frames - long, medium and short. This style of analysis enables the trader to see the 'whole' picture for any particular security.
A basic understanding of the components that make up the Ichimoku chart is essential to effectively applying this trading method. The method was developed in the 1920's and released to the public in 1968 by Tokyo financial journalist, Goichi Hosoda. It is believed that he employed more than 10,000 university students to backtest the indicators which came to make up the Ichimoku trading method.
Ichimoku charts is commonly used by many Japanese trading rooms because it offers multiple assessments of price action in many time frames and suggests trades with higher or lower probability for success. Traders new to the method may be confused by the 'busy looking' Ichimoku charts but a basic understanding of the indicators reveals a method which is quite simple in it's application.
The following is an extract from a recent exchange with a candlestick trader:
Scotty: What do you use as confirmation of a candlestick pattern? For example, on a bullish piercing line pattern, what would you consider as confirmation of this pattern. Would it be just a higher close in the following bar from the piercing line's close? Or is a higher close from the open in the current bar considered confirmation in the case of a gap down next?
IchimokuCharts.com: With ALL Japanese Candlestick reversal patterns there MUST be a prior trend in place i.e. a series of candles with either higher highs and higher lows or lower highs and lower lows (the definitions of an up trend and a down trend). If there is no trend in place or it has only recently been established, there is NO reversal pattern because there is nothing to reverse. Now, confirmation of a reversal pattern is new price trending action in the opposite direction to the prior trend. Therefore, if a down trend is in place (LHs and LLs) and we have criteria for, say a Bullish Engulfing pattern in place, we would require a candle with higher high and a higher low ( an up trend) to CONFIRM the bullish reversal.