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 A), and of the midpoint of the 52-period high and low (senkou span B) plotted six months ahead.

BREAKING DOWN '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. While it seems complicated at first glance, those familiar with how to read the charts often find it easy to understand with well-defined trading signals.

Here's an example of an Ichimoku Cloud generated on StockCharts.com:

Example of an Ichimoku Cloud chart.

There are five calculations used to generate the Ichimoku Cloud:

  1. Tenkan-sen = (9-day high + 9-day low) / 2
  2. Kijun-sen = (26-day high + 26-day low) / 2
  3. Senkou Span A = (Tenkan-sen + Kijun-sen) / 2
  4. Senkou Span B = (52-day high + 52-day low) / 2
  5. Chikou Span = Close plotted 26 days in the past

Ichimoku Cloud Signals

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.

Traders will often use the Senkou "cloud" as an area of support and resistance depending on the relative location of the price. In the chart above, the Senkou "cloud" provides support levels that can be projected into the future. This sets the Ichimoku Cloud apart from many other technical indicators that only provide support and resistance levels for the current date and time.

Traders should use the Ichimoku Cloud in conjunction with other technical indicators to maximize their risk-adjusted returns over time. For example, the indicator is often paired with the Relative Strength Index (RSI), which can be used to confirm or disconfirm momentum in a certain direction. It's also important to look at the bigger trends to see how the smaller trends fit within them.

RELATED TERMS
  1. Senkou Span B

    Senkou Span B is one of five major components used in the Ichimoku ...
  2. Kijun-Sen

    The Kijun-sen is a major indicator line and important component ...
  3. Cloud Storage

    Cloud storage is a way for businesses and consumers to save data ...
  4. Cloud Hijacking

    Cloud hijacking is the breaking into or taking over of the cloud ...
  5. SPAN Margin

    SPAN margin is a system that determines margin requirements according ...
  6. Zone Of Resistance

    Zone of resistance refers to the zone where a rising stock price ...
Related Articles
  1. Trading

    Most Commonly Used Forex Chart Patterns

    Greatly improve your forex trading by learning these commonly used forex chart patterns that provide entries, stops and profit targets.
  2. Investing

    What's Behind Cloud Peak's 56% One-Month Rise? (CLD)

    With its year-to-date stock gains of 167%, coal producer Cloud Peak Energy has operated above the clouds for some time.
  3. Tech

    Hacker Protection: When to Get a Personal Cloud

    With data breaches increasing, it's more important than ever to find the safest way to store your valuable files.
  4. Investing

    Amazon Leads Cloud Infrastructure Market: Canalys

    Amazon's market share is more than the next three players combined, but new players and price cuts may affect the market.
  5. Investing

    US Complains About China Cloud Restrictions

    U.S. lawmakers sent a letter to the Chinese ambassador complaining about restrictions on foreign cloud computing players.
  6. Investing

    Microsoft Could Surpass Amazon in Cloud Computing This Year

    Microsoft could surpass Amazon in the exploding cloud computing market, according to Pacific Crest Securities.
  7. Investing

    Cisco To Terminate $1B Public Cloud Unit

    Cisco abandons effort to beat Amazon's AWS cloud service.
  8. Tech

    Take Note Of Key Trends That Are Gaining Momentum

    Technology is on the rise and rapidly evolving. Prospective tech investors need to pay attention to trends and which sectors could be the next big thing.
  9. Investing

    Huawei: New Competitor in China's Cloud Market

    Alibaba and Amazon take on a new rival in the Chinese cloud computing market.
  10. Investing

    What Oracle’s Aggressive Cloud Initiative Means (ORCL)

    Oracle threatens Amazon's cloud dominance, while joining a wave of old guard tech companies restructuring to find their niche in the booming cloud space.
RELATED FAQS
  1. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
  2. Why is the Moving Average (MA) important for traders and analysts?

    See why the statistical concept of moving averages plays a central role for traders and chartists who rely on technical analysis ... Read Answer >>
  3. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
  4. How can I determine a stock's next resistance level or target price?

    Determining where the price of an asset will stop once it has hit a new high is one of the most difficult tasks for any trader. Read Answer >>
  5. What are the best technical indicators to complement the Moving Average Convergence ...

    Learn the best technical indicators to use as part of a trading strategy in conjunction with the moving average convergence ... Read Answer >>
Trading Center