What is the Ichimoku Cloud?

The Ichimoku Cloud is a technical indicator that tries to show trend, momentum and likely support and resistance in one view. Its full name, Ichimoku Kinko Hyo, roughly means one glance equilibrium chart. It was developed by the Japanese journalist Goichi Hosoda, who began work on it in the late 1930s and published it in the late 1960s.

What is Ichimoku Cloud indicator made of?

Fidelity lists five lines. Each "midpoint" below is the highest high plus the lowest low over the period, divided by two.

• Tenkan-sen (conversion line): the 9-period midpoint.
• Kijun-sen (base line): the 26-period midpoint.
• Senkou Span A (leading span A): the average of the tenkan and kijun, plotted 26 periods ahead.
• Senkou Span B (leading span B): the 52-period midpoint, plotted 26 periods ahead.
• Chikou Span (lagging span): the latest close, plotted 26 periods back.

Unlike a moving average of closing prices, covered in the 200-week moving average guide, these lines use the range between highs and lows.

What is tenkan in Ichimoku Cloud?

The tenkan-sen is the fast line. Because it covers only nine periods, it reacts quickly to price. The kijun-sen is the slower partner. Fidelity explains that the tenkan rising above the kijun is read as a positive trend, and falling below it as a negative one. Such a cross is considered stronger when it happens on the same side of the cloud as the move.

What is kumo in Ichimoku Cloud?

Kumo is Japanese for cloud. It is the shaded area between Senkou Span A and Senkou Span B. Because both spans are plotted 26 periods ahead, the cloud extends into the future part of the chart, though it is built only from past prices.

According to Wikipedia's summary, the cloud's edges act as possible support and resistance, and a thicker cloud is seen as a stronger zone than a thin one. When Span A is above Span B, the cloud is usually read as bullish, and the reverse as bearish. A point where the two spans swap places is called a kumo twist.

What does Ichimoku Cloud show, and what are its limits?

Fidelity says price above the cloud points to an uptrend and price below it to a downtrend. Price inside the cloud is read as a neutral or sideways market, which the Nasdaq article describes as consolidation.

The tool has drawbacks. Its standard 9, 26 and 52 settings come from the era of a six-day trading week. Some analysts propose other values, but shorter settings can produce more false signals and longer ones arrive later. Crypto trades every day of the week, so a 26-period daily cloud covers a different span of calendar time than it would on a stock chart. With five lines in play, readings can also conflict, and none of them predicts what happens next. For other common chart tools, see what MACD is.