Ichimoku Kinko Hyo (Ichimoku cloud)

The idea in plain words

Ichimoku means "one-glance" chart. It uses midpoints of recent highs and lows (not averages of closes) to describe where the market's balance point is over the short, medium and long term, and shifts some lines forward or backward in time to compare today with the past and the future.

How it is calculated

Tenkan-sen and Kijun-sen are midpoints of the last 9 and 26 candles. Span A (their average) and Span B (the 52-candle midpoint) form the cloud and are drawn 26 candles ahead. Chikou is today's close drawn 26 candles back.

Tenkan = (highest high + lowest low of last 9) ÷ 2
Kijun = (highest high + lowest low of last 26) ÷ 2
Span A = (Tenkan + Kijun) ÷ 2, shifted 26 candles forward
Span B = (highest high + lowest low of last 52) ÷ 2, shifted 26 forward
Chikou = close, shifted 26 back

How to use it

• Price above the cloud: uptrend; below: downtrend; inside: unclear.
• Tenkan crossing above Kijun is a buy signal, stronger when it happens above the cloud.
• The cloud's edges act as support and resistance; a thick cloud is stronger than a thin one.

Drawing conclusions

• A green cloud (Span A above Span B) ahead suggests the bullish balance continues; a red one, bearish.
• Chikou above the price of 26 candles ago confirms an uptrend.

Watch out for

• Designed for daily charts; on very short timeframes it can be noisy.
• Lots of lines: start with just the cloud and the price, then add the others.

A little history

Developed by the Japanese journalist Goichi Hosoda, who wrote as "Ichimoku Sanjin", from the late 1930s and published in the late 1960s after decades of testing.