How to use the ichimoku cloud in trading
The Ichimoku Kinko Hyo, or "Ichimoku Cloud," is a technical indicator that is used to identify trends and support and resistance levels in financial markets. It was developed in the late 1930s by Goichi Hosoda, a Japanese journalist and trader.
The Ichimoku Cloud is made up of five lines:
The Tenkan-sen (Conversion Line): This line is calculated by taking the highest high and the lowest low over the past nine periods and dividing the result by two. It is used to identify the current trend.
The Kijun-sen (Base Line): This line is calculated by taking the highest high and the lowest low over the past 26 periods and dividing the result by two. It is used to identify the long-term trend.
The Chikou Span (Lagging Line): This line is plotted 26 periods behind the current period. It is used to identify possible support and resistance levels.
The Senkou Span A (Leading Span A): This line is calculated by taking the midpoint between the Tenkan-sen and the Kijun-sen and plotting it 26 periods ahead. It is used to identify potential support and resistance levels.
The Senkou Span B (Leading Span B): This line is calculated by taking the highest high and the lowest low over the past 52 periods and dividing the result by two, then plotting it 26 periods ahead. It is used to identify potential support and resistance levels.
To use the Ichimoku Cloud, traders look for crossovers between the various lines to identify potential buy and sell signals. For example, if the Tenkan-sen crosses above the Kijun-sen, it may be a buy signal, while if it crosses below the Kijun-sen, it may be a sell signal.
Traders also use the "cloud" formed by the Senkou Span A and Senkou Span B lines to identify support and resistance levels. If the price is above the cloud, it may be considered an uptrend, while if it is below the cloud, it may be considered a downtrend.
It's important to note that the Ichimoku Cloud is just one tool in a trader's toolkit, and it should be used in conjunction with other technical indicators and fundamental analysis to make informed trading decisions.
