What is the ‘Ichimoku Cloud’
The Ichimoku cloud is a chart used in technical analysis that shows support and resistance, and momentum and trend directions for a security or investment. It is designed to provide relevant information at a glance using moving averages (tenkan-sen and kijun-sen) to show bullish and bearish crossover points. The “clouds” (kumo, in Japanese) are formed between spans of the average of the tenkan-sen and kijun-sen plotted six months ahead (senkou span B), and of the midpoint of the 52-week high and low (senkou span B) plotted six months ahead.
Explaining ‘Ichimoku Cloud’
The ichimoku cloud was developed by Goichi Hosoda, a Japanese journalist, and published in the late 1960s. It provides more data points than the standard candlestick chart.
The overall trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself. When senkou span A is rising above senkou span B the trend is stronger upward, and is typically colored green. When senkou span B rises above senkou span A, the trend is stronger downward and is denoted with a red-colored cloud.
Further Reading
- Can the Leading Us Energy Stock Prices Be Predicted Using Ichimoku Clouds? – papers.ssrn.com [PDF]
- The profitability of Ichimoku Kinkohyo based trading rules in stock markets and FX markets – onlinelibrary.wiley.com [PDF]
- Short-term foreign exchange rate trading based on the support/resistance level of Ichimoku Kinkohyo – ieeexplore.ieee.org [PDF]
