Ichimoku Cloud (Kinko Hyo) Trading Strategies Explained

The Ichimoku Cloud is a technical analysis tool that was developed in the late 1930s by Japanese journalist Goichi Hosoda. Ichimoku means “one glance” in Japanese, and that’s what you should be able to do with this unique trading indicator.

The Ichimoku Cloud, also known as Kumo, is a collection of indicators designed as a trading system that can be used to trade all kinds of securities.

Ichimoku Indicator Is Used Across Instruments

Many use Ichimoku cloud to trade assets including stocks, ETFs , futures, and even forex. Whilst it can be used on any time frame, Ichimoku trading signals are most accurate on longer time frames such as the daily and weekly.

Also known as the Ichimoku Kinko Hyo, Ichimoku trading cloud is comprised of five different lines that are used to identify trends and support/resistance levels.

Ichimoku Cloud can either be used as a standalone trading system or in conjunction with other technical indicators as part of a more rounded trading plan.

The five lines in the system are actually five individual indicators, all of which work together to generate trading signals.

Although the Ichimoku trading cloud indicator is primarily used as a trend following tool, it can also be used to identify support and resistance levels.

Ichimoku Cloud Explained

Ichimoku Cloud Indicator On Chart
Ichimoku Cloud Indicator On Downward Trending Chart – Chart From Tradingview.com

As mentioned, the Ichimoku Cloud consists of five different lines. See these lines on Ichimoku explained in the list below:

– The Tenkan-Sen is the conversion line and is calculated by taking the highest high and the lowest low over the past 9 periods and dividing by 2.

– The Kijun-Sen is the base line and is calculated by taking the highest high and the lowest low over the past 26 periods and dividing by 2.

– The Senkou Span A is the leading span A and is calculated by taking the Tenkan-Sen and the Kijun-Sen and dividing by 2. This line is then plotted 26 periods in the future.

– The Senkou Span B is the leading span B and is calculated by taking the highest high and the lowest low over the past 52 periods and dividing by 2. This line is then plotted 26 periods in the future.

– The Chikou Span is the lagging span and is plotted 26 periods behind the current price.

How To Use Ichimoku Cloud Trading Strategy

The Ichimoku Cloud is commonly used to identify trends, support and resistance levels, and potential trade opportunities. Knowing exactly how to use Ichimoku strategy is not quite as difficult as it might seem at first glance.

When the price is above the Ichimoku cloud, this is generally indicative of an uptrend.

Conversely, when the price is below the cloud, this is generally indicative of a downtrend. The cloud can also be used to identify potential support and resistance levels.

The Ichimoku Cloud can be used as a standalone trading system or in conjunction with other technical indicators.

Ichimoku Trading Strategies – The Setups To Watch

Some common trade setups and strategies that use the Ichimoku Cloud include the following:

This occurs when the Tenkan-Sen crosses above the Kijun-Sen. This is generally considered to be a bullish signal and a core ichimoku strategy.

This occurs when the Kijun-Sen crosses above the Tenkan-Sen. This is considered to be a bearish signal.

This occurs when the price breaks out above or below the cloud. This can be used as a bullish or bearish signal depending on the direction of the breakout.

Kumo Twist is an Ichimoku Cloud trading strategy that attempts to take advantage of cloud breakouts. The strategy involves waiting for the cloud to form and then entering a trade when the price breaks out of the cloud.

The Kumo Twist strategy can be used on any time frame, but it is most commonly used on daily charts. The strategy is simple to understand and can be easily implemented by traders of all levels of experience.

Ichimoku default settings explained

The ichimoku default settings are 9, 26, 52. These settings can be adjusted to fit your needs and prefernces as an Ichimoku trader.

For example, a trader who is looking for shorter-term trends may adjust the tenkan-sen to 5, while an ichimoku trader who is looking for longer-term trends may adjust the kijun-sen to 60.

The ichimoku cloud indicator can be used to identify trends and support and resistance levels across many timeframes, but is is usually used over longer periods. The trading cloud itself is formed by two moving averages, the tenkan-sen and the kijun-sen, which are set at 9 and 26 periods respectively.

The Ichimoku Cloud is a versatile technical analysis tool that can be used to trade a variety of markets and timeframes. While it is a relatively simple indicator to understand, it can take some time to master. However, with practice, the Ichimoku trading cloud can be a valuable addition to any trader’s toolkit.

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Ichimoku Cloud FAQS

What is the best timeframe for Ichimoku?

The best time frame to use for the Ichimoku cloud will depend on the trader’s goals and objectives. Some traders may find that the 4-hour time frame works well for their needs, while others may prefer to use the daily or weekly time frame.

Ultimately, it is up to you as an individual trader to determine which time frame is best suited for your trading style and goals.

Why Is An Ichimoku Trader Successful?

When it comes to trading, the Ichimoku Cloud is often considered one of the most accurate and reliable indicators around. This is why an Ichimoku trader tends to be some of the most successful traders in the market. With that in mind, there is still no guarantee of success as either an Ichimoku trader, or any other type of technical trading.

Which indicator works best with Ichimoku trading?

Our preferred indicators are RSI and they work very well with the Ichimoku trading strategy. When using the Ichimoku indicator to ride the trends, it can be helpful in knowing when trends are over and when potential reversals signify exit from trades.