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Ichimoku Cloud: how to properly set up and read the cloud indicator

Ichimoku cloud is a chart indicator used in technical analysis to identify support and resistance areas.

The cloud is designed to provide entry and exit strategies based on moving average crossovers while giving a clear glimpse of bullish or bearish patterns.

Moving Averages

The moving averages used in the Ichimoku cloud are tenkan-sen and kijun-sen. Tenkan-sen is the 9-period moving average; Kijun-sen is the 26-period moving average.

The tenkan-sen line (9-period) is the leading line; the kijun-sen (26-period) is the standard line. The tenkan-sen line (9-period) tracks price with more accuracy because of the shorter period of time it covers.

In the Ichimoku cloud indicator, these two moving averages calculate the mid-point between the highest high and lowest low of a security between of the span two time periods, plotted six months into the future.

When the tenkan-sen line crosses and moves above the kijun-sen it gives a buying signal. On the other hand, a sell signal is given when the tenkan-sen line crosses and moves below the kijun-sen line.

Cloud Settings

Standard line or Base line (purple): 26 periods

Lagging span line (light blue): n/a

Turning line A or Leading span A (yellow): 9 periods

Turning line B or Leading span B (dark blue): 52 periods

Cloud: 25%

Trend

The ichimoku cloud is also used to confirm momentum and trend. The picture above shows an uptrend.

Price is inside the cloud during consolidations and/or sideway trends.

When price is above the cloud, we are in an uptrend; when price is below the cloud we are in a downtrend.

UPTREND

Price trading above the cloud is in un uptrend. If you are going long, you also want price to trade above standard line (purple line) and the turning line (yellow line). In addition the lagging line (light blue line) needs to point up.

DOWNTREND

Price below the cloud is in a downtrend. If you are going short, you also want price to trade below standard line (purple line) and the turning line (yellow line). In addition the lagging line (light blue line) needs to point down.

Good trading!


Trading Risk Disclaimer

All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can never be guaranteed. SharperTrades, LLC is not registered as an investment adviser with any federal or state regulatory agency. This is not an offer to buy or sell stocks, cryptos, forex, futures, options, commodity interests or any other trading securities.

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