Ichimoku Cloud is a popular technical analysis tool used in trading. It helps traders to identify trends, support and resistance levels, and potential entry and exit points. In this tutorial, we will cover the basics of Ichimoku Cloud.
What is Ichimoku Cloud?
Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a visual tool that provides a comprehensive view of the market. It consists of several elements, including:
- Tenkan-sen: The conversion line.
- Kijun-sen: The base line.
- Senkou Span A: The leading span A.
- Senkou Span B: The leading span B.
- Chikou Span: The lagging span.
Ichimoku Cloud Elements
Tenkan-sen
The Tenkan-sen is calculated by taking the highest high and the lowest low over the past nine periods, then dividing the result by two. It represents the short-term trend.
Kijun-sen
The Kijun-sen is calculated by taking the highest high and the lowest low over the past 26 periods, then dividing the result by two. It represents the medium-term trend.
Senkou Span A
The Senkou Span A is the average of the Tenkan-sen and Kijun-sen, projected forward by half the time period of the Kijun-sen. It represents the expected price range for the next 26 trading periods.
Senkou Span B
The Senkou Span B is calculated by taking the highest high and the lowest low over the past 52 periods, then dividing the result by two. It represents the long-term trend.
Chikou Span
The Chikou Span is the closing price of the current candle, shifted back 26 periods. It acts as a lagging indicator.
Ichimoku Cloud Strategies
Ichimoku Cloud can be used in various trading strategies. Here are a few:
Crossing Strategy: When the price crosses above the Senkou Span A, it indicates a bullish trend. Conversely, when the price crosses below the Senkou Span B, it indicates a bearish trend.
Cloud Breakout Strategy: When the price breaks above the Senkou Span A, it indicates a strong bullish trend. Similarly, when the price breaks below the Senkou Span B, it indicates a strong bearish trend.
Support/Resistance Strategy: Ichimoku Cloud can be used to identify support and resistance levels. The Senkou Span A and B act as dynamic support and resistance levels.
Further Reading
For more in-depth knowledge about Ichimoku Cloud, you can read our detailed guide on Ichimoku Cloud Advanced Techniques.