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    Ichimoku Cloud

    Definition

    The Ichimoku Cloud is a comprehensive study that gives you a "one-look" snapshot of an asset's support/resistance levels, momentum, and trend direction. It consists of five lines: Tenkan Sen, Kijun Sen, Senkou Span A, Senkou Span B, and Chikou.

  • Tenkan Sen (Conversion Line) – Calculated as the sum of the Highest High over the past nine periods and the Lowest Low divided by two.

  • The Kijun Sen (Base Line) – Calculated as the sum of the Highest High over the past 22 periods and the Lowest Low divided by two.

  • Senkou Span A (leading) – The sum of the Tenkan Sen and the Kijun Sen divided by two. The calculation is then plotted 26 time periods ahead of the current price action.

  • Senkou Span B (leading) – The sum of the Highest High and the Lowest Low over the past 52 periods divided by two. It is also plotted 26 periods ahead.

  • Chikou (lagging) – The same and Senkou Span B leading but plotted 26 periods in the past.

    • These lines create various "clouds" that help you quickly identify key areas in the market.

    Suggested Trading Use

    When the price is above the cloud, that's a bullish signal, suggesting it might be a good time to consider a long position. Conversely, if the price is below the cloud, the market is bearish, and you might consider shorting the asset. The Tenkan Sen and Kijun Sen lines also serve as dynamic support and resistance levels: crossing above is generally bullish, while crossing below is bearish.

    The cloud itself can act as a region of support or resistance. If you're in a trade, pay attention to how the price interacts with the cloud. A strong trend will often be confirmed by the price staying consistently on one side of the cloud.

    Remember, the Ichimoku Cloud offers a lot at a single glance, but it's always wise to corroborate its readings with other aspects of your trading strategy.