Ichmoku Cloud

Description:

The Ichimoku Cloud, also known as the Ichimoku Kinko Hyo, is a popular and comprehensive technical indicator that provides traders with a visual representation of support and resistance levels, market trends, and potential buy and sell signals.

Input Parameters:

• Tekan Length: Represents the average of the highest high and the lowest low over the past 9 periods, acting as a short-term trend indicator.
• Kijun Length: Similar to Tekazn but uses a more extended look-back period of 26 periods, serving as a medium-term trend indicator and is often used as support or resistance level.
• Displacement: This calculates how far ahead the cloud’s projection is and how far behind the Chioku Span lags.
• Senkou A Length: Represents the average of the Tenkan-San and Kijun-Sen, projected 26 periods into the future. It is the first boundary of the indicator.
• Senkou B Length: Represents the average of the highest high and the lowest low over the past 52 periods, projected 26 periods into the future. It forms the other boundary of this indicator.
• Chikou Span: Plotted 26 periods into the past. It serves as a momentum indicator and helps traders identify potential trend reversals.
• Kumo: Also known as the cloud portion of the indicator, consists of two lines the 'Senkou Span A' and the 'Senkou Span B'. These lines form a shaded line between them, which represents potential future price movements.

Use Cases:

• Trend Direction: The market is considered bullish when the price is above the cloud and bearish when the price is below the cloud. The market is considered in equilibrium or consolidation when the price is within the cloud.
• Trend Strength: A wider cloud suggests stronger support or resistance levels and a more robust trend, while a thinner cloud indicates weaker support or resistance and a weaker trend.
• Support and Resistance Levels: The cloud’s upper and lower boundaries act as dynamic support and resistance levels, which change over time as the cloud shifts. Traders can use these levels to identify potential areas where the price may bounce or reverse.
• Buy and Sell Signals: A buy signal is generated when the Tenkan-Sen crosses above the Kijun-Sen, and a sell signal is generated when the Tenkan-Sen crosses below the Kijun-Sen. Additionally, when the Chikou Span crosses the price from below, it generates a bullish signal, while a bearish signal is generated when the Chikou Span crosses the price from above.

This feature can be used in:

• Market Scanner
• Strategy Tester
• Dynamic Alerts
• Multi-Factor Alerts
• Smart Checklist

Do you want to learn more? Check out our Learning Center Article.