Understanding how to read chart indicators can help transform you into a successful and profitable gold trader. According to the Forex online trading school BabyPips.com, Ichimoku Kinko Hyo (IKH) is the chart indicator with the best performance over the past five years. According to their analysis, it generated a return of 30.35%, compared to minus 20.72% for the Stochastic indicator or 4% for MACD. IKH determines future areas of support and resistance, and gauges price momentum going forward.
What is IKH?
IKH is a Japanese phrase which means “a glance at the chart in equilibrium.” It is composed of four different lines. Kijun sen, the standard line, averages the lowest low and highest high over the past 26 periods. Tenkan sen, the turning line, averages those same numbers, but only for the past nine periods. Chikou span, the lagging line, is today’s closing price, but it’s plotted 26 periods behind. Finally, there is Senkou span, which consists of two different lines. The first averages the Kijun sen and Tenkan sen and plots them 26 periods ahead. The second line averages the highest high and lowest low for the past 52 periods and then plots 26 periods forward.
How to Use Ichimoku Kinko Hyo Indicator
So how do you use the ichimoku kinko hyo indicator when you are trading gold? IKH is an indicator that throws a lot of information at you. You don’t need to know the ins and outs of each line, you just need to know how to interpret them. When the price is over the Senkou span, then the top line is the first support level, while the bottom line is the second support level. If the price is below the Senkou span, then the opposite applies – the lines are resistance levels.
The Kijun sen indicates future price movement. So if the price is above the line, expect it to keep climbing. If the price is below the line, expect it to keep dropping. The Tenkan sen indicates the market trend. If the line moves up or down, the market is trending. When the line moves horizontally, the market is ranging. Finally, we have the Chikou span. You are being given a buy signal when the line crosses the price from the bottom upward. Likewise, it is a sell signal if the line crosses the price from the top downward.
Forex ichimoku kinko hyo sounds complicated, but really it’s an all-in-one chart indicator. That’s why it has proven such a successful strategy over the years. Pay attention to what it is telling you, and you could be among the gold forex traders who use IKH to reap big profits.
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