its one of the "five lines" of Ichimoku, and generally the more you work with the whole charting system, you start to see where it comes in, as a part of the dynamic whole of the five lines. So for example, if you are in a trade, that is moving bullish up over the kumo, and now for at at least 10 candlesticks on the M5, nicely and you are attempting to assess where, and when to exit, there are a few aspects that then are involved. Lets say its a relatively steady trend movement upwards. The best way is to attempt to forecast (not determine) where it is likely to start to fade out, or top. The central way is to use ichimoku time, wave and price observation theory combined. That then will give you four levels that are where it is likely to reach. Mostly it will often be the most basic one for assesing the high of the third leg in a formation of an N wave. SO in some cases the price action may not reach that or has certain complications lets say to even make the diff levels. Paritucularly if the price action is only an I wave (or impulse wave, that is just nearly straight up from the opening bell with no pull back of any significance). So one then often glances how the Chikou line is relating to the current price action. In general if it is making contact with the current price action its in essence indicating fairly strongly that the price action is starting to flatten out, to falter. The crest of the trend is flattening out. So good chance that the name is about to start to sell off. This is also indicated by the price action relation to the tenkan line and kijun line relations as that proceeds. The Chikou becomes one more aspect which gives you a certain kind of insight into what is forming. Here it is something to consider but not neccesarily absolutely critical, imho, but rather in certain circumstances it can help to clearly assess how the trend formation is going.
Where it is most certainly very useful is when and if you are considering shorting. Price action should be falling below both the kijun, tenkan and kumo, and inititally under the death kijun/tenkan cross. The chikou further confirms that the movement is strong, when it is seen in a correct place below. And lastly its most useful in assessing taking a trade or continuing in a trade from the point of which the price action has closed above the kumo, from below (in other words a reversal from a bottom point). one wants to see that the chikou is also clearly above the same kumo. if it is not then it is indicating that the price is to be considered highly precarious as to if it will continue to move upwards or rather turn right back down (in other words, at times right after crossing the resistance zone -- as indicated in effect often at the top edges of the kumo in the time frame that it is then, it has just traversed from below -- price action can pause, etc. and start to sell off, sending it down back into the kumo zone.. causing then possibly that one has missed an important moment to sell or to be ready to sell or be looking closely for it to continue to scale up. I am not covering all that is to it, and indeed in some instances or situations its not really that critical, but in some other instances you are likely to find that it gives important element to consider in how one is assessing the price action in the current moment. The japanese books are really useful to more fully grasp the whole system and in real time (it has to be worked with in real time many times to start to really grasp how they are 'working' as a whole. This just cannot be understood or grasped in your own way without a combination of studying and seeing in real time how they work dynamically with reading price action on live charts). One may need to use google translate to read these texts unless one can read japanese. Other then the books by Hosoda which are very expensive now if one can find them, there are two japanese books that are excellent. I would also recommend Ichimoku Total which is in spanish and quite good but not as fully explaining how it is a comprehensive system in effect, imho. Google translate is very effective with spanish so it works very well to translate that way. Unfortunately i cant say the same for how google translate translates japanese. It can be very awkward, still one can figure out most of it.
