The Ichimoku Cloud is a popular technical analysis tool that helps traders identify trends, support and resistance levels, and potential trading signals. It consists of five lines and a shaded area, each with a specific meaning and calculation. In this article, you will learn how to use the Ichimoku Cloud for technical analysis and how to interpret its components.
The Ichimoku Cloud, also known as the Ichimoku Kinko Hyo, is a Japanese charting method that translates to "one glance equilibrium chart". It was developed by Goichi Hosoda, a journalist and trader, in the 1930s and refined over decades of testing. The Ichimoku Cloud aims to provide a comprehensive picture of the market conditions and the direction and strength of the trend.
I would say Ichimoku is the best indicator ever for any trend trader, regardless of his experience. I gives you a clear understand if price is bullish or bearing, or better stay aside when price is inside the cloud.
The Ichimoku Cloud is composed of five lines and a shaded area. The Tenkan-sen, or conversion line, is the average of the highest high and the lowest low of the last nine periods and it represents the short-term trend and momentum. The Kijun-sen, or base line, is the average of the highest high and the lowest low of the last 26 periods and it represents the medium-term trend and momentum. The Senkou Span A, or leading span A, is the average of the Tenkan-sen and the Kijun-sen, plotted 26 periods ahead, forming one edge of the cloud. The Senkou Span B, or leading span B, is the average of the highest high and the lowest low of the last 52 periods, plotted 26 periods ahead, forming the other edge. The Chikou Span, or lagging span, is the current price plotted 26 periods behind and it represents past price action and confirmation. The shaded area between these two spans is known as the cloud or Kumo. Its color and thickness indicate trend and market volatility.
The Ichimoku Cloud can help traders identify the trend and its direction, strength, and reversal. Generally speaking, if the price is above the cloud, the trend is bullish, while if the price is below the cloud, the trend is bearish. If the price is inside the cloud, the trend is neutral or unclear. Additionally, if the cloud is green, it indicates a bullish trend, while a red cloud signals a bearish one. The color of the cloud changes when the Senkou Span A crosses the Senkou Span B. Furthermore, if the cloud is thick, it indicates a strong trend with solid support or resistance. A thin cloud suggests a weak trend with fragile support or resistance. Finally, when the price crosses the cloud from below to above, it signals a bullish trend reversal, while crossing from above to below signals a bearish trend reversal.
Es muy útil en los mercados que mantienen tendencias por largos periodos de tiempo. No suelo utilizarlo en los mercados que tiendan mucho a los movimientos laterales, ya que, puede causar confusión. Como también pasa en periodos de tiempo muy cortos. éste indicador es muy efectivo para hacer los análisis semanales porque de un vistazo ya te da mucha información además, de los mensuales y anuales
The Ichimoku Cloud can also assist traders in generating trading signals based on the interactions between the price and the lines. For instance, when the Tenkan-sen crosses above the Kijun-sen and the price is above the cloud with a green tint, this is a bullish signal known as a TK cross. Similarly, when the Tenkan-sen crosses below the Kijun-sen and the price is below the cloud with a red hue, this is a bearish signal also referred to as a TK cross. Additionally, when the price crosses above or below the Kijun-sen with either an above or below cloud respectively, this is known as a Kijun-sen breakout. Lastly, when the Chikou Span crosses above or below the price with either an above or below cloud respectively, this is called a Chikou Span confirmation.
For beginners, if all the lines cross the cloud when the cloud projection is green, the candle that shows a closing above the cloud, that’s the entry point.
The Ichimoku Cloud can also help traders manage their risk and exit their positions by providing dynamic support and resistance levels. For example, the cloud can act as a support or resistance zone, depending on the trend direction, and it can be used as a target or a stop-loss level. Additionally, the Kijun-sen can act as a trailing stop-loss level, following the medium-term trend and momentum. On the other hand, the Tenkan-sen can be used as a profit-taking level, reflecting the short-term trend and momentum. Thus, when the Tenkan-sen flattens or reverses, traders can lock in some profits since it may indicate a pause or a correction in the trend.