Itimoku Kinkô Hyô Candlesticks

Itimoku Kinkô Hyô, the applied candlestick chart derived from Japan.

In addition to the rather simple patterns depicted in the section above, there are more complex and difficult patterns which have been identified since the charting method’s inception.

Itimoku Kinkô Hyô Candlesticks2


Lines and colors

The Ichimoku Kinko Hyo indicator consists of five lines:

Tenkan-sen – the average price level, Red-  (High + Low)/2, calculated over the first time period;

Kijun-sen – Blue- the average price level over the second time period;

Senkou Span A / Up Kumo – Sandy Brown- midway between Tenkan-sen and Kijun-sen, shifted forward for the length equal to the second time period;

Senkou Span B / Down Kumo – Deep Pink- the average price level over the third time period, shifted forward for the length equal to the second time period.

Chinkou Span – current bar close, shifted backward for the length equal to the second time period.

The “cloud” known as the “Kumo”, is the space between “Senkou Span A” and “Senkou Span B”.

If the price stays above the cloud then there is an upward trend.

If it stays below the cloud then there is a downward trend.

If the price is within the cloud then the market is flat.

If Tenkan-sen line moves sideways then it is a signal for a flat market.

Candlestick charts also convey more information than other forms of charts, such as bar charts. Just as with bar charts, they display the absolute values of the open, high, low, and closing price for a given period. But they also show how those prices are relative to the prior periods’ prices, so one can tell by looking at one bar if the price action is higher or lower than the prior one. They are also visually easier to look at and can be colorized for even better definition.


Use of candlestick charts

Candlestick charts are a visual aid for decision making in stock, forex, commodity, and options trading. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true for a black bar.

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice.