Ichimoku cloud
Family VI · Charts & indicators
Not to be confused with moving average, parabolic sar, bollinger bands.
Ichimoku Cloud is a technical analysis indicator that combines multiple moving averages into a single visual framework. It projects a 'cloud' (kumo) forward, which serves as a dynamic zone of potential support or resistance. The system also includes lines for trend direction and momentum, offering a comprehensive snapshot of price action.
Components and Calculation
The Ichimoku Cloud consists of five lines, each calculated from the high and low prices over specific periods. The default periods are 9, 26, and 52, but these can vary by trading style or market.
- Tenkan-sen (Conversion Line): (9-period high + 9-period low) / 2
- Kijun-sen (Base Line): (26-period high + 26-period low) / 2
- Senkou Span A (Leading Span A): (Tenkan-sen + Kijun-sen) / 2, plotted 26 periods ahead
- Senkou Span B (Leading Span B): (52-period high + 52-period low) / 2, plotted 26 periods ahead
- Chikou Span (Lagging Span): Closing price plotted 26 periods behind
The area between Senkou Span A and Senkou Span B forms the cloud (kumo).
Worked Example
Assume a daily chart with the following price data over the past 52 days. The 9-period high is 105, 9-period low is 95; 26-period high is 110, 26-period low is 90; 52-period high is 120, 52-period low is 80. The current close is 100.
In this example, the cloud is flat because both leading spans are equal. A flat cloud often indicates a period of consolidation or indecision.
Interpretation
Traders use the Ichimoku Cloud to gauge trend direction, momentum, and support/resistance levels. Key signals include:
- Price above the cloud: Bullish signal; the cloud may act as support.
- Price below the cloud: Bearish signal; the cloud may act as resistance.
- Price inside the cloud: Neutral or ranging market; signals are less reliable.
- Tenkan-sen crossing Kijun-sen: Potential trend change; a cross above the cloud is stronger than below.
- Chikou Span position: Confirms momentum; above past price is bullish, below is bearish.
The thickness of the cloud also matters: a thick cloud suggests stronger support or resistance, while a thin cloud indicates weaker levels.
Often confused with
- moving average
- A moving average is a continuously recalculated line that plots the arithmetic mean of a price series over a fixed number of the most recent periods, dropping the oldest value as each new one is added.
- parabolic sar
- The Parabolic SAR is a chart overlay that plots a trailing stop-and-reverse level as a series of dots, accelerating toward price over time and flipping to the opposite side when a trend reverses.
- bollinger bands
- Bollinger Bands are a volatility indicator plotted as a moving average with an upper and lower band set a number of standard deviations away, so the bands widen when price volatility rises and narrow when it falls.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci