Ichimoku Cloud, A Complete System on One Chart

[Fairman]

Ichimoku Cloud, A Complete System on One Chart

Ichimoku looks intimidating with its many lines and a colored cloud, but its logic is straightforward. It shows trend, momentum, and support and resistance in a single view.

diagram.png (38.46 KiB) Viewed 59 times

The main components:

- Tenkan-sen (conversion line): a short-term average of highs and lows
- Kijun-sen (base line): a medium-term version
- Senkou Span A and B: the edges of the cloud (kumo)
- Chikou Span: the current close plotted back in time

Basic readings:

1. Trend: price above the cloud suggests an uptrend, below suggests a downtrend, inside suggests indecision.
2. Momentum: Tenkan crossing above Kijun can signal rising momentum, below signals falling momentum.
3. Support and resistance: the cloud acts as a zone. A thicker cloud suggests stronger support or resistance.
4. Confirmation: the Chikou Span above past prices supports bullish bias.

Simple approach:

- Trade in the direction of the cloud
- Wait for pullbacks to the Kijun or cloud in a trend
- Use cloud edges for stops
- Skip trades when price is inside the cloud

Cautions:

- It lags, like other trend tools
- It works best on higher timeframes and trending markets
- Learning takes time

If you try it, spend a month studying it on charts before trading it. Understanding comes from observation.

[PropScalpDesk]

Worth translating the default settings into time before using this on a fast chart. 9, 26 and 52 come from a six-day trading week in Japan. On M5, Senkou Span B is the midpoint of the last 52 bars, which is about four and a third hours, and the cloud is shifted 26 bars forward, a little over two hours. So on a scalping chart the "cloud" mostly describes the Asian session when London opens.

On point 4, the Chikou Span is just the current close plotted 26 bars back. Checking whether it sits above past prices is the same as asking whether today's close is above the close 26 bars ago. Treating it as a separate confirmation next to Tenkan and the cloud double-counts the same momentum.

Your caution about higher timeframes is right. On H1 and above the cloud works as a trend filter; on M5 price slices through it so often that "skip trades inside the cloud" removes half the day.

[LondonNewsTrader]

Chikou Span: the current close plotted back in time

Worth adding the default settings, because they explain a quirk people notice. The standard 9, 26 and 52 periods come from a six-day trading week in Japan when the system was designed: nine days was a week and a half, 26 roughly a month. Many traders keep them unchanged on all timeframes, which is fine, but on an hourly chart they no longer mean anything calendar-wise.

The cloud is also plotted 26 periods ahead, so the "future" cloud is based entirely on past prices. It looks predictive but it isn't.

On data days, I'd treat Ichimoku signals with caution. A single release candle can drag the Tenkan and Kijun across each other, and a crossover printed in the minute after a CPI surprise is the market repricing, not a momentum signal in the usual sense.