Ichimoku Cloud

There are five plots that make up the Ichimoku Cloud indicator set. These are their names and calculations:

Tenkan Sen aka “Conversion Line”: (MaxHigh+MinLow)/2 … using period = 9 Kijun Sen aka “Base Line”: (MaxHigh+MinLow)/2 … using period = 26 Chiku Span aka “Lagging Span”: Price Close shifted back 26 bars Senkou A aka “Leading Span A”: (Tenkan Sen+Kijun Sen)/2 (SenkouA is shifted forward 26 bars) Senkou B aka “Leading Span B”: (MaxHigh+MinLow)/2 … using period = 52 (Senkou B is shifted forward 26 bars)

In the chart below: Tenkan Sen: Blue Kijun Sen: Red Chiku Span: Yellow Senkou A: Magenta Senkou B: White

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Tenkan Sen and Kijun Sen are analyzed in relationship to one another. These two plots move very similarly to Moving Averages. Therefore, when the shorter term indicator (Tenkan Sen) rises above the longer term indicator (Kijun Sen), the issue’s trend is typically positive. When Tenkan Sen falls below Kijun Sen, the issue’s trend is typically negative.

Tenkan Sen and Kijun Sen – as a group- are then analyzed in relationship to the ‘Cloud’, which is composed of the area between Senkou A and Senkou B. When Tenkan Sen and Kijun Sen are decidedly above the ‘Cloud’, the issue’s trend is decisively positive. When Tenkan Sen and Kijun Sen are decidedly below the ‘Cloud’, the issue’s trend is decisively negative.

Important: When Tenkan Sen and Kijun Sen are both above the ‘Cloud’ and the issue’s Price is in an established uptrend, Price should tend to use Tenkan Sen, Kijun Sen, Senkou A, and Senkou B levels as support. When Tenkan Sen and Kijun Sen are both below the ‘Cloud’ and the issue’s Price is in an established downtrend, Price should tend to use Tenkan Sen, Kijun Sen, Senkou A, and Senkou B levels as resistance.

Major shifts in indicator direction and in relative positioning should be monitored and can provide insight into likely key trend reversals.

The final indicator included in the set – Chiku Span – is nothing more than Price Close shifted backward 26 bars. Crossovers among Chiku Span and the other indicators in the set provide visual confirmation that a significant Price behavior is taking place.