The Ichimoku Cloud (Ichimoku Kinko Hyo) is a comprehensive technical analysis system developed by Japanese journalist Goichi Hosoda in the 1960s. Unlike most indicators that show only one dimension, Ichimoku provides a complete picture of support/resistance, trend direction, momentum, and potential future price action all in one view.
What is the Ichimoku Cloud?
Ichimoku Kinko Hyo translates to "one glance equilibrium chart." The indicator consists of five lines and a shaded area (the cloud or Kumo). At first glance, it may look complex, but each component serves a specific purpose.
Key concept: Ichimoku tells you at a glance whether a market is bullish or bearish, where support and resistance lie, and the strength of the current trend. When price is above the cloud, the trend is up. When below, the trend is down.
The Five Components
1. Tenkan-sen (Conversion Line)
- Calculation: (9-period high + 9-period low) / 2
- Purpose: Shows short-term momentum and support/resistance
- Similar to a 9-period moving average but uses highs and lows
2. Kijun-sen (Base Line)
- Calculation: (26-period high + 26-period low) / 2
- Purpose: Shows medium-term momentum and support/resistance
- Key level for stops and trend confirmation
3. Senkou Span A (Leading Span A)
- Calculation: (Tenkan-sen + Kijun-sen) / 2, plotted 26 periods ahead
- Purpose: Forms one boundary of the cloud
- Faster-moving edge of the cloud
4. Senkou Span B (Leading Span B)
- Calculation: (52-period high + 52-period low) / 2, plotted 26 periods ahead
- Purpose: Forms the other boundary of the cloud
- Slower-moving edge of the cloud
5. Chikou Span (Lagging Span)
- Calculation: Current closing price plotted 26 periods back
- Purpose: Confirms trend by comparing current price to past price
- Used for momentum confirmation
The Cloud (Kumo)
The area between Senkou Span A and Senkou Span B forms the cloud:
- Green/Bullish Cloud: Senkou Span A above Senkou Span B
- Red/Bearish Cloud: Senkou Span B above Senkou Span A
- Thick Cloud: Strong support/resistance
- Thin Cloud: Weak support/resistance, easier to break
Reading the Cloud
Price above a green cloud = Strong bullish bias
Price above a red cloud = Bullish but weakening
Price below a green cloud = Bearish but potential reversal
Price below a red cloud = Strong bearish bias
Ichimoku Trading Signals
1. Tenkan/Kijun Cross (TK Cross)
- Bullish cross: Tenkan crosses above Kijun
- Bearish cross: Tenkan crosses below Kijun
- Signal strength depends on where cross occurs relative to cloud
TK Cross Strength
Bullish cross above cloud = Strong buy signal
Bullish cross inside cloud = Neutral/weak signal
Bullish cross below cloud = Weak signal (counter-trend)
2. Kumo Breakout
- Bullish breakout: Price closes above the cloud
- Bearish breakout: Price closes below the cloud
- Confirmed when Chikou Span also breaks the cloud
3. Chikou Span Confirmation
- Chikou above price from 26 periods ago = Bullish
- Chikou below price from 26 periods ago = Bearish
- Used to confirm other signals
4. Kumo Twist
- When Senkou Span A crosses Senkou Span B
- Cloud changes color
- Can signal potential trend change
- Occurs 26 periods in the future on the chart
Signal Confirmation
The strongest Ichimoku signals occur when multiple components align. A single signal (like a TK cross) is weaker than multiple confirming signals. Always look for agreement between components.
Ichimoku Trading Strategies
1. Cloud Trading Strategy
- Only go long when price is above the cloud
- Only go short when price is below the cloud
- Use TK crosses for entry timing
- Place stops below the cloud (for longs) or above (for shorts)
2. Kumo Breakout Strategy
- Wait for price to trade inside the cloud (consolidation)
- Enter when price breaks out of the cloud
- Confirm with Chikou Span breaking past price
- Target the next significant support/resistance level
3. Kijun Bounce Strategy
- In uptrends, Kijun-sen often acts as support
- Buy when price pulls back to Kijun and bounces
- In downtrends, Kijun acts as resistance
- Sell when price rallies to Kijun and reverses
Complete Bullish Setup
Price above the cloud (bullish bias)
Cloud is green (Span A above Span B)
Tenkan crosses above Kijun (momentum)
Chikou Span is above price (confirmation)
All four conditions = High-probability long trade
Ichimoku Settings
Traditional settings developed for 6-day trading weeks in Japan:
- Tenkan-sen: 9 periods
- Kijun-sen: 26 periods
- Senkou Span B: 52 periods
- Displacement: 26 periods
Some traders adjust for modern 5-day weeks:
- 7, 22, 44 (proportional adjustment)
- 8, 22, 44 (popular alternative)
Advantages of Ichimoku
- All-in-one indicator showing multiple dimensions
- Provides future support/resistance (cloud plotted ahead)
- Clear visual representation of trend and momentum
- Works on any timeframe
- Includes confirmation mechanism (Chikou)
Limitations of Ichimoku
- Complex and visually busy for beginners
- Lagging indicator - signals come after moves begin
- Can produce many signals in ranging markets
- Standard settings may not suit all markets
- Requires practice to interpret properly
Best Practices for Ichimoku
- Wait for multiple components to align before trading
- Respect the cloud as major support/resistance
- Use higher timeframes for trend direction, lower for entries
- Pay attention to cloud thickness for strength of levels
- Look for Kumo twists as early warning of potential reversals
- Always confirm signals with Chikou Span
Track Your Ichimoku Trades
Pro Trader Dashboard helps you analyze which Ichimoku setups work best and improve your trading performance over time.
Summary
The Ichimoku Cloud is a comprehensive trading system that provides trend direction, momentum, support/resistance, and future projections in one indicator. The five components (Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chikou Span) work together to give a complete market picture. Price above the cloud is bullish; below is bearish. The strongest signals occur when multiple components align. While it may look complex initially, Ichimoku can become a powerful single-indicator system with practice and proper understanding of its components.
Learn more: Support and Resistance and Moving Averages.