Ichimoku

What Is the Ichimoku Cloud?

The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction. It does this by taking multiple averages and plotting them on a chart. It also uses these figures to compute a “cloud” that attempts to forecast where the price may find support or resistance in the future.

The Ichimoku Cloud was developed by Goichi Hosoda, a Japanese journalist, and published in the late 1960s.1 It provides more data points than the standard candlestick chart. While it seems complicated at first glance, those familiar with how to read the charts often find it easy to understand with well-defined trading signals.

Key Takeaways

• The Ichimoku Cloud is composed of five lines or calculations, two of which comprise a cloud where the difference between the two lines is shaded in.
• The lines include a nine-period average, a 26-period average, an average of those two averages, a 52-period average, and a lagging closing price line.
• The cloud is a key part of the indicator. When the price is below the cloud, the trend is down. When the price is above the cloud, the trend is up.
• The above trend signals are strengthened if the cloud is moving in the same direction as the price. For example, during an uptrend, the top of the cloud is moving up, or during a downtrend, the bottom of the cloud is moving down.

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The Formulas for the Ichimoku Cloud

The following are the five formulas for the lines that comprise the Ichimoku Cloud indicator.2

Conversion Line (tenkan sen)=9-PH+9-PL2Base Line (kijun sen)=26-PH + 26-PL2Leading Span A (senkou span A)=CL + Base Line2Leading Span B (senkou span B)=52-PH + 52-PL2Lagging Span (chikou span)=Close plotted 26 periodsin the pastwhere:PH=Period highPL=Period lowCL=Conversion line​Conversion Line (tenkan sen)=29-PH+9-PL​Base Line (kijun sen)=226-PH + 26-PL​Leading Span A (senkou span A)=2CL + Base Line​Leading Span B (senkou span B)=252-PH + 52-PL​Lagging Span (chikou span)=Close plotted 26 periodsLagging Span (chikou span)=in the pastwhere:PH=Period highPL=Period lowCL=Conversion line​
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