Ichimoku Cloud
Quick Definition
A comprehensive Japanese charting system that defines support/resistance, trend direction, momentum, and trading signals using five interrelated lines and a shaded "cloud."
Key Takeaways
- Ichimoku provides a complete trading system in one glance: trend, support/resistance, momentum, and signals.
- Price above the cloud is bullish, below is bearish, inside is neutral — cloud thickness shows strength.
- The system works best on daily/weekly timeframes and is popular in forex and crypto trading.
What Is Ichimoku Cloud?
The Ichimoku Kinko Hyo (Japanese for "one-glance equilibrium chart") is a complete trading system developed by Goichi Hosoda in the 1930s. It consists of five lines: Tenkan-sen (Conversion Line, 9-period midpoint), Kijun-sen (Base Line, 26-period midpoint), Senkou Span A (average of Tenkan and Kijun plotted 26 periods ahead), Senkou Span B (52-period midpoint plotted 26 periods ahead), and Chikou Span (current close plotted 26 periods back). The area between Senkou Span A and B forms the "cloud" (Kumo), which provides dynamic support and resistance. When price is above the cloud, the trend is bullish; below the cloud, bearish; inside the cloud, the market is in transition. A bullish signal occurs when the Tenkan-sen crosses above the Kijun-sen above the cloud. The cloud's thickness indicates support/resistance strength — thick clouds are harder to penetrate. The future cloud (plotted 26 periods ahead) gives a unique forward-looking element. Ichimoku excels on higher timeframes (daily and weekly) and is particularly popular in forex and cryptocurrency markets.
Ichimoku Cloud Example
- 1The stock broke above a thick Ichimoku cloud after three failed attempts — the cloud had acted as a ceiling for four months. The breakout above the cloud on strong volume confirmed the trend change from bearish to bullish.
- 2A Tenkan-Kijun cross above the cloud, with the Chikou Span also above price, produced an "ideal" bullish signal across all five Ichimoku elements — the subsequent rally lasted eight weeks.
Related Terms
Support and Resistance
Key price levels where buying pressure (support) prevents further decline or selling pressure (resistance) prevents further advance.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
Trend Line
A diagonal line drawn across price highs or lows to identify the prevailing trend direction and potential support/resistance.
Moving Average Convergence Divergence (MACD)
A trend-following momentum indicator showing the relationship between two moving averages of a security's price.
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
Bollinger Bands
A volatility indicator consisting of a middle moving average and two bands that expand and contract based on price volatility.
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