Ichimoku Cloud

The Ichimoku indicator was developed by a Japanese journalist Goichi Hosada around 50 years ago. It is a collection of candle sticks along with other 5 lines: Conversion line, base line, lagging span, lead 1 and lead2 that measures price movement and volatility. This is a very effective indicator thus one does not need to use other indicators for confirmation. It works on both trend & momentum and mostly tells us the entry point.

1 Tenkan-Sen (Conversion line)

Tenkan also known as the conversion line is the average/mid points of the highest and lowest prices of an asset over the last nine periods. It also acts as a support and resistance to the prices. 

Rising Tenkan indicates bullish trends and a falling Tenkan indicates bearish trend.

Tenkan and Moving average are different because Tenkan is the average of highest and lowest price of an asset for 9 periods whereas moving average is average of the last closing price of the asset varying according to different time frames.

2 Kijun (Base line)

Kijun also known as the base line is the average/mid points of the highest and lowest prices of an asset over the last twenty-six periods. It also acts as a support and resistance to the prices.

Rising Kijun indicates bullish trends and a falling Kijun indicates bearish trend.

Kijun can be used as a trailing stop loss.

When both Tenkan and Kijun are moving in the same direction i.e., if declining it is an indication to sell the asset whereas when these two are rising it indicates bullish sentiments thus indicating to buy the asset.

3 Senku A (Lead 1) and Senku B (lead2)

Senku A: It is also known as Lead 1 and is the average of base and conversion line. 

Senku B: It is also known as Lead 2 and is the average of the highest and lowest prices of an asset over the last 52 periods.

• If Senku A is above Senku B the trend is bullish trend 
• If Senku B is above Senku A the trend is bearish trend 

4 Kumo cloud

Kumo cloud is the combination of Senku A and Senku B. This cloud is used to project the movement of price for 26 days in future.

 If Senku A is above Senku B it forms a green cloud indicating a bullish trend and vice versa.

The cloud width can help you measure the trend strength so that you can decide whether to enter in the trade or not. A flat cloud represents a consolidated market.

The price must be above the cloud for buying and below for selling. A trader should never trade when the prices lie within the cloud.

5 Chikou (lagging span)

Chikou also known as lagging span is a lagging indicator. It is created by plotting closing prices 26 periods behind the latest closing price of an asset. 

If Chikou is above price it is a bullish trend, if below price it is a bearish trend.

If Chikou & price is above Kumo cloud it is a bullish trend and If Chikou & price is below Kumo then it is a bearish trend.

Chikou & price on the same side of Kumo is a strong signal.