Goichi Hosoda is the Japanese newspaperman credited with the invention of this indicator somewhere in the 1940’s. Research suggests that he worked on its perfection for many years, some say 20 years, He eventually published a book but that book was written in Japanese and didn’t have an English version until somewhere in 1968. This book is today now long forgotten and can’t be found. So others have taken up the cause and carried the semi popularity of this indicator to the English speaking world. The name ichimoku comes from the pen name Mr. Hosoda gave himself, ichimoku sanjin.The proper name for this indicator is ichimoku kinko hyo. The English translation of ichimoku simply means one look, one glance. Kinko Hyo doesn’t translate.
By the next five lines that I will introduce, Hosoda has effectively isolated prices in the market so traders can delineate where prices are trading and make a trading decision at any point along the way.
Tenken Sen, also called a signal line. Directly translated means convert or divert and Sen means  line. This is the first determinant of trade decisions because its the shortest, fastest moving of these moving averages.Its the conversion line. But understand that these lines cannot be used in isolation to make trade decisions. Ichimoku must be used in whole to be effective. Calculate Tenken Sen by taking the highest high of the past nine candles plus the lowest low of the last nine candles and divide by two. What we have is the first short term moving average. But this cannot be looked upon as what we know as today’s moving averages because Tenkan Sen moving averages are not based on closing prices just highs and lows. Tenkan Sen is much more effective because it eliminates false signals and false breaks that moving averages may give.
Kijun Sen is the next moving average line. The direct translation is standard line.Why standard line? Because this is the medium term moving average and can serve as a very strong support or very strong resistance line. Its also the base line to the Tenkan line. Calculate Kijun Sen by taking the highest high of the past 26 candles plus the lowest low of the past 26 candles and divide by two.
Next is Senkou Span A. Senkou translates to up first or first batter. Calculate Senkou Span A by taking the Tenkan  line plus the Kijun line and divide by two and offset 26 candles ahead. This ingenious line is a forward moving average with an upper boundary of support and a lower line of resistance. What we are forming here is what this indicator is known for, the cloud or the Japanese translation, the Kumo.
The second part of the cloud is Senkou Span B. To calculate Senkou Span B, take the highest high of the past 52 candles plus the lowest low of the past 52 candles and divide by 2 and offset 26 candles ahead. Another ingenious forward moving average with a lower boundary of support and upper boundary of resistance. This completes the cloud, an area where traders should not trade if prices fall into this zone. This is one reason why Senkou Span A and B are so important parts to the whole regarding ichimoku and its uses.
Chikou Span is the last of the moving average lines to introduce before moving into uses, characteristics, when to trade and when to go long or short using ichimoku. Chikou Span is what is known as the lagging line of ichimoku. Chiku translates to section or sector. To calculate Chikou Span, take today’s closing price plotted 26 bars back. Chikou Span serves as a market sentiment indicator used to determine momentum. Chikou Span follows price action as it serves as momentum. For example, in a short position Chikou Span will follow prices but its line will be below prices. This is where the lagging line terminology comes into use. A long position will find Chikou Span above the price.
Notice the theme of 9, 26 and 52 throughout. These are the settings that not only come standard with the ichimoku indicator on all charting packages but its also the original settings invented, used and recommended by Mr.Hosoda through many years of solid research. Recent research reveals some try to change settings hoping for faster response times like the 7, 22 and 44 settings.The thinking is the lower the numbers on the settings, the faster response times one will experience so profits will come quicker. Those maybe taking money off the table by not using this indicator to its fullest and intended purpose. Lowering settings could lead to false signals and taking profits to early. I know this indicator well and have used it for a long time so I caution traders to use this indicator for its intended purpose and all will see huge profits no matter the markets traded. The purpose of ichimoku is to follow not just trends but solid and long lasting trends with the most solid of clear buy and sell signals. Here is how this is done.
Senkou Span A and Senkou Span B are the two lines that delineate where the cloud is located. Between the two lines is what is known as the cloud. This is the shaded area on the charts. When prices are trading within the cloud, chances are any buy or sell signal will be weak because Senkou Span A and Senkou Span B are strong lines of support and resistance so prices will have a hard time trading outside the cloud up or down. Better wait until price can break out of the cloud and better trade signals to generate.
Notice how some shaded areas within the cloud are huge where  Senkou Span A and Senkou Span B are lines not close together. This represents high volatility. When those lines are close together and the shaded area is small, this represents low volatility. Further regarding the cloud is when prices are trading above the cloud, this is a bullish situation and bearish when prices are trading below the cloud. Yet if Senkou Span A crosses above Senkou Span B, this is quite a bullish situation. Here just follow the cloud up on a long trend. Conversely if Senkou Span B crosses below Senkou Span A, this is a very bearish situation. Again follow the cloud until it stops and take profits. Entry should be made at the cross and exit at the next cross with a stop just above or below the actual cross. These crosses occur but not very often.
Tenkan Sen and Kijun Sen then become the most important lines to generate trade signals.
A bullish situation occurs when the Tenkan line crosses from below the Kijun line and prices are trading above the cloud. Go long here. Entry should be made at the actual cross with a stop at the kijun line, at the first cloud line, Senkou Span A or below the cross. Exit the trade and take profits when the Tenkan line crosses below the Kijun line or when it appears that an actual cross will occur. One can also exit when the Tenkan line flattens because this may mean consolidation. After taking profits and the Tenkan  line makes a bearish cross from above the Kijun line and prices are trading above the cloud, traders could go short here at the cross with a stop above the cross. This is a very short term move. The question would have to be where to take this trade. Possibly to the first cloud line, Senkou Span A or until Tenkan Sen makes a bullish cross above the Kijun line again. Or until the Tenkan line flattens.Why to the first Senkou Span A line and the start of the cloud? Because this is a very strong line of resistance and prices won’t fall into the cloud very easily. When Tenkan Sen crosses from below Kijun Sen and prices are above the cloud, the Tenkan line should follow an upward trajectory much like any moving average line.