📈The Ichimoku Cloud (Ichimoku Kinko Hyo) is a comprehensive technical indicator developed by Japanese journalist Goichi Hosoda in the 1930s. It allows traders to assess the trend, support, resistance, and potential entry or exit points at a glance. The name translates to 'one glance at balance,' emphasizing its ability to provide a complete picture of the market situation.
Structure of the Ichimoku Cloud
The indicator consists of five lines, each calculated based on historical price data:
Tenkan-sen (short-term line) is the average of the maximum and minimum over 9 periods.
Kijun-sen (long-term line) is the same but over 26 periods.
Senkou Span A is the average of Tenkan-sen and Kijun-sen, shifted forward by 26 periods.
Senkou Span B is the average of the maximum and minimum over 52 periods, also shifted forward.
Chikou Span is the closing price, shifted back by 26 periods.
The space between Senkou Span A and B creates a 'cloud' (Kumo), which is a key element of analysis.
How to use?
Trend: if the price is above the cloud, it's a bullish trend; below, it's bearish; inside, it's consolidation.
Signals: the crossover of Tenkan-sen and Kijun-sen may indicate a buy or sell, depending on the direction. The Chikou Span crossing the price confirms the trend.
Support/Resistance: the cloud acts as a dynamic zone where the price may find support or resistance.
Practical example
If the price breaks through the cloud upwards, and Tenkan-sen crosses Kijun-sen from below, this is a strong buy signal. The thickness of the cloud indicates the strength of the zone – a thin cloud is easier to break through.
Advantages and disadvantages
Advantages: versatility, forecasting future levels. Disadvantages: complexity for beginners, possible false signals in sideways markets.
The Ichimoku Cloud is a powerful tool for traders seeking a deep understanding of market dynamics and accurate trading decisions.
