Ichimoku Cloud

Ichimoku Kinko Hyo, usually called the Ichimoku Cloud, is an all in one indicator developed by Japanese journalist Goichi Hosoda, who spent decades refining it before publishing it in 1969. The name roughly means "one glance equilibrium chart". In one view it shows trend direction, momentum, and dynamic support and resistance, including levels projected into the future. It looks complicated at first, but each line has a simple job.

The five lines#

Unlike moving averages, the Tenkan and Kijun are midpoints of high and low ranges, not averages of closes. The space between Span A and Span B is shaded: that is the cloud, or Kumo.

Reading the cloud#

• Price above the cloud: bullish trend.
• Price below the cloud: bearish trend.
• Price inside the cloud: no clear trend; consolidation.
• Cloud colour: when Span A is above Span B, the cloud is usually shaded bullish; when below, bearish.
• Cloud thickness: a thick cloud is strong support or resistance; a thin cloud is weak and easier to break.

Because the cloud is plotted 26 periods ahead, it shows where future support and resistance may lie.

Standard signals#

1. Tenkan and Kijun cross: Tenkan crossing above Kijun is bullish, below is bearish. Crosses above the cloud are considered strong; crosses below the cloud weaker.
2. Kumo breakout: price breaking above the cloud signals a possible new uptrend; breaking below, a downtrend.
3. Chikou confirmation: the lagging span above price from 26 periods ago supports a bullish view; below, bearish.
4. Kijun as support: in trends, pullbacks often find support or resistance at the Kijun line.

How traders use Ichimoku#

• Trend filter: trade long only above the cloud, short only below it.
• Pullback entries: buy pullbacks to the Kijun or the cloud's upper edge in uptrends.
• Multi timeframe: check the cloud on a higher timeframe for direction and a lower timeframe for entries. See Multi-Timeframe Analysis.
• Stops: place stops beyond the Kijun or on the other side of the cloud.

Settings#

The default 9, 26, 52 settings come from the Japanese trading week when Hosoda developed the system, which included Saturdays. Some traders adjust them, for example to 10, 30, 60 or for 24/7 crypto markets, but the defaults remain the most widely used, and because so many traders watch them, they tend to matter most.

Limitations#

• Visual clutter can overwhelm beginners.
• Lag: many components use 26 and 52 period ranges.
• Ranges: like most trend tools, Ichimoku whipsaws in sideways markets, especially when price stays inside the cloud.

Common mistakes#

• Using one line in isolation instead of reading the system together.
• Trading signals inside the cloud, where trend is unclear.
• Ignoring cloud thickness when judging support and resistance.

Frequently asked questions#

What does the Ichimoku Cloud show?#

Trend direction, momentum and dynamic support and resistance, including levels projected 26 periods into the future.

What does it mean when price is above the cloud?#

It suggests a bullish trend. Below the cloud suggests bearish; inside suggests no clear trend.

What are the default Ichimoku settings?#

9, 26 and 52 periods for the Tenkan, Kijun and Senkou Span B, with spans shifted 26 periods.

Sources#

• Wikipedia, Ichimoku Kinko Hyo