Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a technical analysis instrument belonging to trend indicators. In other words, it serves the primary purpose of identifying the direction and reversal of the market trend. What’s more, this isn’t its only purpose. Being quite versatile, Ichimoku may additionally work as an oscillator. That is to say, it gauges the speed of the price change for a given asset. Furthermore, it locates support and resistance levels.
Taking a closer look at Ichimoku Cloud
To give an illustration of what Ichimoku Cloud is, let’s break it down into separate elements. There are five elements in total, where each one is a moving average.
The conversion line Tenkan and the standard line Kijun are also called equilibrium lines. The conversion (blue-colored) line averages the highest high and the lowest low for the last 9 periods. It can signal the trend reversal when crossing the standard (red-colored) line. In comparison, the standard line averages the highest and lowest values for the last 26 periods. It serves as a dynamic support and resistance level.
The second pair of moving averages Senkou Span A and Senkou Span B forms a so-called cloud. Firstly, Senkou Span A averages the two equilibrium lines and shifts the derived values 26 periods ahead. Secondly, Senkou Span B averages the highest high and the lowest low for the last 52 periods, shifting the results 26 periods forward.
In between Senkou Span A and B forms a shaded area on the chart. It is a cloud, which changes color from red to green and vice-versa every time these two boundaries cross each other. When the cloud turns green, the market is thought to be bullish. Conversely, when the color becomes red, the market is considered bearish. The cloud changes color when the trend is likely to reverse. The vertical distance between the borders of the cloud can serve as an indicator of the market volatility.
Finally, the Chikou Span (green-colored line) represents the closing price of the current candle, which is shifted back by 26 periods. This lagging moving average serves as an aid to confirm the trend.
How to set it up?
To add Ichimoku Cloud for the selected asset, follow these simple steps: Firstly, open the Indicators icon and in the pop-up menu scroll down the list to find Ichimoku Cloud. Once you click on it, Settings menu for the indicator will open up.
Secondly, leave the settings by default (or adjust them if you need to) and click Apply.
That’s it! You will be able to change the settings for Ichimoku Cloud or remove the indicator from the chart by going back to the Indicators icon.
Summarizing the signals
All things considered, Ichimoku Cloud suggests a bullish trend when candles are above the cloud. When the cloud turns from red to green, the candles move above the Kijun base line, and the Tenkan conversion line moves above the base line, an indicator is signaling that the market may be reversing to bullish. On the contrary, Ichimoku Cloud suggests a bearish trend when candles are below the cloud. When the cloud turns from green to red, the candles move below the Kijun base line, and the Tenkan conversion line moves below the base line, an indicator is signaling that the market may be reversing to bearish. Professional traders prefer to combine Ichimoku Cloud with other indicators for a more accurate analysis.Trade now
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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