Ichimoku Cloud
A comprehensive Japanese trend system of five lines — including a shaded 'cloud' — that simultaneously signals trend direction, momentum, and dynamic support/resistance.
Description
Ichimoku Kinko Hyo (“equilibrium chart at a glance”) was developed by Japanese journalist Goichi Hosoda and published in 1969. It plots five lines simultaneously, several of which are projected forward in time, creating a visual picture of trend, momentum, and expected support/resistance in a single indicator.
How It Works
The five components: Tenkan-sen (conversion line) = (9-period high + 9-period low) / 2. Kijun-sen (base line) = (26-period high + 26-period low) / 2. Senkou Span A = (Tenkan + Kijun) / 2, plotted 26 periods ahead. Senkou Span B = (52-period high + 52-period low) / 2, plotted 26 periods ahead. The area between Span A and Span B forms the Kumo (cloud). Chikou Span (lagging line) = current close plotted 26 periods back.
How to Read It
Price above the cloud signals an uptrend; below signals a downtrend; inside the cloud signals a ranging market. A bullish cloud (Span A above Span B) provides stronger support than a bearish cloud. Tenkan/Kijun crossovers indicate momentum shifts — a Tenkan crossing above Kijun while price is above the cloud is a strong buy signal. The Chikou Span confirms: it should be above price for a bullish signal, below for bearish.
Common Uses
- Full trend assessment using a single indicator
- Identifying cloud-based support and resistance zones
- Entry timing via Tenkan/Kijun crossovers
- Projecting future support/resistance from cloud boundaries
Caveats
Ichimoku is genuinely complex — five components with interacting signals produce many potential configurations, and reading them requires practice. The standard parameters (9, 26, 52) were calibrated for Japanese markets and may need adjustment for other instruments. In ranging markets, all five components generate false signals. Most effective on daily and weekly charts.