Ichimoku cloud
Ichimoku is a Japanese indicator that tries to show trend, support, and resistance at a glance. Its most-watched part is the cloud between the two leading lines: if the price is above the cloud, it's in an uptrend; if below, it's in a downtrend.
On the daily chart above, you see two lines around the price and a colored area between them. The green line is the first leading line, and the red line is the second leading line. The area between them is the cloud: if the first line is on top, the cloud is colored green; if the second line is on top, it's colored red.
The name Ichimoku means 'one glance equilibrium' in Japanese. It consists of five lines, but its most-watched part is the cloud. The first leading line is the average of the midpoints of the short and medium terms (9 and 26 candles). The second leading line is the midpoint of the highest and lowest prices of the last 52 candles. Since the second one covers a longer period, it moves slower.
Reading the cloud is simple. If the price is above the cloud, it's in an uptrend, and the cloud acts as a support below it. If the price is below the cloud, it's in a downtrend, and the cloud acts as a resistance above it. If the price is inside the cloud, the market is indecisive. The thickness of the cloud also carries information: a thick cloud is a strong support or resistance zone; the price passes through a thin cloud more easily. When the color of the cloud changes, meaning the two leading lines cross, it indicates a change in the direction of the medium-term equilibrium.
Important note: in classic Ichimoku charts, the cloud is plotted shifted 26 candles forward, thus extending into the future. In our chart, the cloud is plotted at the level of the candle it's calculated for. If you put this chart side-by-side with the cloud on TradingView, it will appear shifted; the values are the same, only the positioning is different.
Ichimoku works best in clear trends and on larger timeframes like daily. In a sideways market, the price can be stuck inside the cloud for a long time, and the lines constantly cross each other.
How to read it
- First, look at where the price is relative to the cloud: above, inside, or below.
- Read the color and thickness of the cloud: a thick green cloud is a strong support, a thick red cloud is a strong resistance.
- Confirm the cloud breakout with a close; days spent inside the cloud indicate indecision.
- Use Ichimoku on daily and weekly charts; it's too noisy on smaller timeframes.
In this state right now
Currently, liquid symbols on the daily chart where the price has just moved above the cloud (at most 3% above the cloud) and is also above the base line.
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Trap
The most common mistake is to mistake the price touching the cloud for a breakout. The cloud is a zone; a price entering it has not yet moved in either direction. The second trap is to confuse the cloud in this chart with the shifted cloud on TradingView and think it's 'drawn incorrectly': the difference is only in positioning. The third is using Ichimoku in a sideways market: in a period where lines constantly cross, the indicator tells you indecision, not direction.
Tip
Among the scans, there is one that finds symbols where the price has broken above the cloud. When you open the symbol found by the breakout, look at the thickness of the cloud and how many days the price has stayed above the cloud.
Glossary
- Cloud
- The area between the two leading lines; acts as a support or resistance zone above or below the price.
- First leading line
- Average of the midpoints of the short and medium terms; the fast edge of the cloud.
- Second leading line
- Midpoint of the highest and lowest prices of the last 52 candles; the slow edge of the cloud.
- Base line
- Midpoint of the highest and lowest prices of the last 26 candles; medium-term equilibrium level.
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