Ichimoku Cloud Strategy

By Josh Olszewicz

Ichimoku Kinko Hyo translates into “one look equilibrium chart”. With one look, chartists can identify the trend and look for potential signals within that trend. The indicator was developed by Goichi Hosoda, a journalist, and published in his 1969 book. Even though the Ichimoku Cloud may seem complicated when viewed on the price chart, it is really a straight forward indicator that is very usable. It was, after all, created by a journalist, not a rocket scientist!

Ichimoku cloud uses past action of the market to predict future most likely direction along with support and resistance lines. It is calculated from past EMAs and highs vs lows, among other things, here’s more if you need to know.

The number of lines is confusing but here’s the basic info you need to know:

The Senkou span are the borders of the (here) green cloud. It is green in this case as the market is bullish. It will be red in bearish markets. The space between the lines is called kumo. Senkou spans are major support/resistance lines – people set their stop orders on them because once the trend breaks through both of them, a reversal should come.
Kinjun and Tenken lines are “balance” lines – fast and slow EMAs. If the price keeps around them, it is not overhyped nor underpriced. If it gets distant it is changing direction way faster than it “should” and a pullback is likely. In such a case, people set stop-loss orders around the lines if they are in a position and don’t want to take profits until necessary.
The Chinkou line is a lagging indicator. You can use it to confirm a trend.

BASICS: Ichimoku cloud Bullish signals

For a strong bullish signal, everything must occur above the Kumo cloud: The price action must remain above the Kumo cloud. The Chinkou line must stay above the kumo and Tenken should be crossing Kinjun also above the Kumo. Tenken should be crossing upside – if this cross occurs inside of the Kumo that’s still bullish but not so strongly bullish.

BASICS: Ichimoku cloud Bearish signals

If you are looking for strong bearish signal, with Ichimoku cloud you can pretty much reverse all that has been said to bullish signals – price action occurs below Kumo, as well as Tenken and Kinjun crossing and the lagging line Chinkou. Basically the more happens below the stronger the bears are.

BASICS: None of this?

If none of this is happening then it most likely means that at your timeframe the market is undecided, sideways, waiting for direction. Don’t worry, if a breakout happens the traders of twitter and reddit will call it – keep reading to learn whom to follow.