The chikou span, also known as the lagging span, is one of the five components of the Ichimoku Kinko Hyo charting system, which is a popular technical analysis tool used in Forex trading. The chikou span is essentially a momentum indicator that helps traders determine the strength of a trend and potential reversal points.
The chikou span is calculated by plotting the current closing price of an asset 26 periods back on the chart. This means that the chikou span lags behind the current price by 26 periods, hence the name lagging span. The chikou span is plotted on the chart behind the current price action, and it can be used in conjunction with the other components of the Ichimoku Kinko Hyo system to generate trading signals.
When the chikou span is above the price action on the chart, it is considered a bullish signal, indicating that the trend is likely to continue. Conversely, when the chikou span is below the price action, it is considered a bearish signal, indicating that the trend is likely to reverse.
One of the key benefits of using the chikou span is that it can help traders confirm whether a trend is truly strong or not. For example, if the price of an asset is in an uptrend, but the chikou span is below the price action, this could be a warning sign that the trend is losing momentum and may soon reverse. On the other hand, if the chikou span is above the price action, it confirms that the uptrend is strong and likely to continue.
The chikou span can also be used to identify potential support and resistance levels. When the chikou span intersects with the price action, it can act as a support or resistance level, depending on whether it is below or above the price action, respectively. This can be helpful for traders who are looking to enter or exit positions at key levels.
Another way to use the chikou span is to look for divergences between the chikou span and the price action. A bullish divergence occurs when the price of an asset makes a lower low, but the chikou span makes a higher low. This can indicate that the trend is losing momentum and is likely to reverse. Conversely, a bearish divergence occurs when the price makes a higher high, but the chikou span makes a lower high, indicating that the trend may be losing steam.
In summary, the chikou span is a useful tool for Forex traders who are looking to confirm the strength of a trend and identify potential reversal points. It can be used in conjunction with the other components of the Ichimoku Kinko Hyo system to generate trading signals and help traders make more informed decisions. However, like any technical analysis tool, the chikou span should not be used in isolation and should be used alongside other indicators and analysis methods to make well-informed trading decisions.
