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Ichimoku Cloud Explained for Beginners

  • Writer: Mag Shum
    Mag Shum
  • May 13
  • 2 min read

The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a technical analysis tool used in trading (stocks, crypto, forex, etc.) to understand price trends, momentum, and support/resistance levels — all in one view.


Even though it looks complex at first, it becomes easier once you break it down.


What is the Ichimoku Cloud?

It’s a chart overlay that helps you quickly see the overall direction of a market. It shows:

  • Whether a market is trending up, down, or sideways

  • Where support and resistance levels might be

  • When a trend might be starting or ending


Main Components of Ichimoku Cloud Chart

There are 5 lines in the Ichimoku system:

  1. Tenkan-sen (Conversion Line)

    • Short-term trend line

    • Formula: (High + Low) / 2 over the past 9 periods

  2. Kijun-sen (Base Line)

    • Medium-term trend line

    • Formula: (High + Low) / 2 over the past 26 periods

  3. Senkou Span A (Leading Span A)

    • One of the Cloud’s boundaries

    • Average of the Tenkan-sen and Kijun-sen

    • Plotted 26 periods ahead in time

  4. Senkou Span B (Leading Span B)

    • The second Cloud boundary

    • Formula: (High + Low) / 2 over the past 52 periods

    • Also plotted 26 periods ahead

  5. Chikou Span (Lagging Span)

    • Current closing price plotted 26 periods back

    • Helps confirm trends



The "Cloud" (Kumo)

The shaded area between Senkou Span A and Senkou Span B is the cloud. It acts like dynamic support/resistance:

  • Price ABOVE the cloud = Bullish trend (buyers are in control).

  • Price BELOW the cloud = Bearish trend (sellers are in control).

  • Price INSIDE the cloud = Neutral/choppy (no clear trend).


Cloud Colors:

  • If Senkou A > Senkou B, the cloud turns green (bullish).

  • If Senkou B > Senkou A, the cloud turns red (bearish).


Key Signals for Traders

  1. Trend Direction:

    • Price above/below the cloud tells you the dominant trend.

  2. Crossovers (Entries/Exits):

    • Conversion Line crosses ABOVE Base Line = Bullish signal (buy).

    • Conversion Line crosses BELOW Base Line = Bearish signal (sell).

  3. Chikou Span Confirmation:

    • If Chikou (lagging line) is above price = Bullish confirmation.

    • If Chikou is below price = Bearish confirmation.

  4. Cloud Thickness:

    • Thick cloud = Strong support/resistance.

    • Thin cloud = Weak support/resistance (trend may reverse).


Simple Use for Beginners

  1. Trend direction: Is the price above or below the cloud?

  2. Support/Resistance: Use the cloud as a visual zone.

  3. Momentum: If the Tenkan-sen is above the Kijun-sen, it's bullish (and vice versa).

  4. Confirmation: Chikou Span helps confirm the current trend — it should agree with what the price is doing.


Summary

The Ichimoku Cloud gives you a snapshot of the market with just a glance. Once you get used to its components, it can be a powerful part of your trading strategy. Remember to use it on daily/weekly charts for clearer trends, and combine with other tools (e.g., RSI, volume) for stronger signals.


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