Technical Analysis
Ichimoku Cloud: Japan's All-in-One Trend System
The Ichimoku Cloud combines trend direction, momentum, support/resistance, and signal generation in a single indicator — once decoded, it's one of the most complete systems in technical analysis.
Key rules
- Price above the cloud = bullish; below = bearish; inside = no trade / reduce size
- A TK cross (Tenkan above Kijun) above the cloud is a strong bullish entry signal
- Cloud thickness represents the strength of support/resistance — thicker = harder to break
- A 'cloud twist' projected in the future warns of a potential upcoming trend change
- Chikou Span should confirm: above price history for bullish setups, below for bearish
The Ichimoku Kinko Hyo ('one glance equilibrium chart') was developed by Japanese journalist Goichi Hosoda in the 1930s and published in 1969. It was originally designed for Japanese rice futures traders and has since become one of the most comprehensive standalone technical indicators.
**The Five Components** 1. **Tenkan-sen (Conversion Line)**: (9-period high + 9-period low) / 2. Short-term momentum. A crossing above Kijun-sen is a bullish signal. 2. **Kijun-sen (Base Line)**: (26-period high + 26-period low) / 2. Medium-term trend and important support/resistance. 3. **Senkou Span A (Leading Span A)**: (Tenkan + Kijun) / 2, plotted 26 periods ahead. Forms the upper/lower boundary of the cloud. 4. **Senkou Span B (Leading Span B)**: (52-period high + 52-period low) / 2, plotted 26 periods ahead. Forms the other cloud boundary. 5. **Chikou Span (Lagging Span)**: Current close plotted 26 periods back. Confirms signals.
**The Kumo (Cloud)** The area between Span A and Span B is the Kumo — the cloud. Price above the cloud = bullish. Price below = bearish. Price inside = neutral/avoid. A thick cloud means strong support/resistance; thin cloud means weak. A "cloud twist" (Span A crossing Span B ahead in time) signals a potential trend change before it happens.
**The TK Cross Signal** When Tenkan-sen crosses above Kijun-sen, it is a bullish signal. When it crosses below, it is bearish. This signal is strongest when it occurs above the cloud (strong bullish) and weakest when inside or below it.
**Chikou Span Confirmation** For a signal to be strong, the Chikou Span (current close, lagging 26 periods) should be above price history (bullish) or below (bearish). This filters out many false signals.
**Using Ichimoku Practically** The cloud itself is the most practically useful element for most traders. Above cloud + price above Span A and B = maintain bullish bias. Below cloud = bearish. The system works best on daily and weekly charts.