What it is
Ichimoku Kinko Hyo, roughly "one glance equilibrium chart", was developed by Japanese journalist Goichi Hosoda and published in the late 1960s. It shows trend, momentum and support and resistance together.
Each line is a midpoint of a high and low range, not an average of closes, so it reflects the range price has covered. The cloud (kumo) is projected forward, giving a view of where support or resistance sits ahead. A thick cloud is a stronger barrier than a thin one. The traditional system also has a lagging line, the close plotted 26 candles back; the WickSpeak version draws the two lines and the cloud.
How it is calculated
Conversion line (tenkan sen): (highest high + lowest low) / 2 over the last 9 candles. Base line (kijun sen): the same over 26 candles. Leading span A: (conversion + base) / 2, plotted 26 candles ahead. Leading span B: (highest high + lowest low) / 2 over 52 candles, plotted 26 candles ahead. The cloud is the area between span A and span B; it is coloured bullish when span A is above span B and bearish when it is below.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| conversion | 9 | 1 to 120 | Length of the conversion (fast) line. |
| base | 26 | 1 to 200 | Length of the base (slow) line, and how far ahead the cloud is plotted. |
| span B | 52 | 1 to 300 | Length of the slower leading span, which sets the cloud's far edge. |
How to read it
How to trade it
- 1
On a 1 hour gold chart, only look for longs while price is above the cloud.
- 2
Entry trigger: the conversion line crosses above the base line, or price pulls back to the base line and closes back above it.
- 3
Stop below the base line or below the top of the cloud, whichever is further. On gold 1 hour this is often 10 to 25 points.
- 4
Target 2 times the stop, then trail under the base line. Exit on a close below the base line.
- 5
On US30, the 4 hour chart with the same rules gives fewer but cleaner signals.
A close back inside the cloud cancels a long, and a close below the cloud ends the uptrend view. A conversion line cross back below the base line is the early warning.
On WickSpeak, the Ichimoku Cloud writes a plain-English reading on the live candle: where price sits against the cloud, what the two lines are doing, how to trade it and what would prove it wrong. In Playbook you can test: the fast line crosses above or below the slow line, price is above the cloud, price is below the cloud, or the fast line is above or below the slow line.
Best markets and timeframes
Ichimoku was built for daily charts and works well on 1 hour to daily charts of gold, US30, NAS100 and the major forex pairs, especially the yen pairs. On 1 to 5 minute charts the cloud is thin and signals are noisy.
Common mistakes
- Taking a line cross while price is inside the cloud.
- Changing the settings to 7, 22, 44 or similar without testing; the defaults are what most chart readers watch.
- Ignoring cloud thickness: a thin cloud is easily broken.
Works well with
Questions traders ask
What do the Ichimoku numbers 9, 26 and 52 mean?
They are lengths in candles: 9 for the conversion line, 26 for the base line and the forward shift, and 52 for leading span B. They came from the Japanese trading week of the time, roughly a week and a half, a month and two months.
How do you read the Ichimoku Cloud quickly?
Look at where price is against the cloud first: above is bullish, below is bearish, inside is neutral. Then check whether the conversion line is above the base line and whether the cloud ahead is bullish or bearish.
Is Ichimoku good for day trading?
It can work on 15 minute and 1 hour charts. On faster charts the cloud is thin and flips often, so many day traders read Ichimoku on the 1 hour for direction and enter on a lower timeframe.
What is a kumo breakout?
A close from inside the cloud to outside it. A close above a bearish cloud that turns bullish ahead is the classic sign of a new uptrend; it needs a stop back inside the cloud.