Chinkou

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One of the most intriguing elements of the whole Ichimoku indicator it is represented by the Chinkou. The reason for that is that it is viewed as a lagging indicator, meaning shows current price levels projected back twenty six periods on the chart. Why would that be important, many would ask? Well, price is spending in consolidation or ranges most of the time, and in order to take the time element into consideration, Chinkou comes in handy. By the time Chinkou line is approaching the actual candles, if the trend is powerful, then it should not touch them, but trying to “avoid” them, continuing the trend. Doing that, it means price just exited the recent consolidation and the trend resumes to the initial direction.

And there you go, this is one way in which traders are having an educated guess about the possible moment of time price should break current ranges.

On the other hand, if Chinkou comes close enough to the candles in front of it, it should be treated as a sign the recent trend is weakening and the trader should look for reversal patterns.

The general interpretation of the Chinkou line is that if it crosses the price in the bottom-up direction, that’s a buy signal, whereas if it crosses the price in the top-down, that’s a sell signal.

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