Demystifying Ichimoku analysis

It’s been around awhile, but Ichimoku analysis seems to have become an increasingly talked-about subject among technicians, especially in the forex market. For better or worse, traders are often attracted to exotic or complex (or complex-sounding) methodologies, presumably under the assumption that something difficult to understand must be useful.

In the case of Ichimoku, a charting technique that combines trend-following and support-resistance components, some exotic terms (to non-Japanese ears, that is) mask common charting tools that are relatively easy to understand and analyze.

The Ichimoku Kinko Hyo charting technique was reportedly developed by Goichi Hosoda, a Japanese newspaper writer, prior to World War II, although he did not publish the method until 1968. The phrase loosely translates to “oneglance balance chart” or “equilibrium chart at-a-glance technique.”

Most traders refer to the method simply as “Ichimoku.” The technique combines trend-following tools similar to moving averages with other calculations that define supposed support and resistance areas. After describing the general precepts of Ichimoku, we will perform some simple tests to better understand how this methodology functions and whether it offers unique benefits.