Ichimoku Cloud

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trading_strategies:ichimoku_cloud [2019/06/24 19:39]
127.0.0.1 external edit
trading_strategies:ichimoku_cloud [2023/10/09 17:47] (current)
jayanthi [Conclusion]
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 ====== Ichimoku Cloud ====== ====== Ichimoku Cloud ======
  
-===== Introduction ​=====+===== What Is the Ichimoku Cloud? ​=====
  
-Even though the name implies one cloud, the Ichimoku Cloud is really a set of indicators designed as a standalone trading system. These indicators can be used to identify support and resistance, determine trend direction and generate trading signals. //Ichimoku Kinko Hyo//, the Japanese name for the technique, is translated as "one look equilibrium chart."​ With one look, chartists ​can identify the trend and look for potential signals within that trend. ​+Even though the name implies one cloud, the Ichimoku Cloud is really a set of indicators designed as a standalone trading system. These indicators can identify support and resistance, determine trend directionand generate trading signals. //Ichimoku Kinko Hyo//, the Japanese name for the technique, is translated as "one look equilibrium chart."​ With one look, you can identify the trend and look for potential signals within that trend. ​
  
-===== Defining ​the Indicators ​=====+===== What Are the Ichimoku Cloud'​s Five Components? ​=====
  
 There are five lines on the Ichimoku Cloud chart at any given time, so let's review the indicators before looking at strategy in depth. See our ChartSchool article for [[:​technical_indicators:​ichimoku_cloud|a detailed article on the Ichimoku Cloud]]. The Japanese name is shown first, followed by the English translation in parentheses. This article will use the English translations. ​ There are five lines on the Ichimoku Cloud chart at any given time, so let's review the indicators before looking at strategy in depth. See our ChartSchool article for [[:​technical_indicators:​ichimoku_cloud|a detailed article on the Ichimoku Cloud]]. The Japanese name is shown first, followed by the English translation in parentheses. This article will use the English translations. ​
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 **Tenkan-sen (Conversion Line):** (9-period high + 9-period low)/2 \\ **Tenkan-sen (Conversion Line):** (9-period high + 9-period low)/2 \\
-On a daily chart, this line is the midpoint of the 9-day high-low range, ​which is almost two weeks.  ​+On a daily chart, this line is the midpoint of the 9-day high-low range, almost two weeks.  ​
  
-**Kijun-sen (Base Line):** (26-period high + 26-period low)/2 \\ +**Kijun-sen (Base Line).** (26-period high + 26-period low)/2 \\ 
-On a daily chart, this line is the midpoint of the 26-day high-low range, ​which is almost one month.  ​+On a daily chart, this line is the midpoint of the 26-day high-low range, almost one month.  ​
  
-**Senkou Span A (Leading Span A):** (Conversion Line + Base Line)/2 \\+**Senkou Span A (Leading Span A).** (Conversion Line + Base Line)/2 \\
 This is the midpoint between the Conversion Line and the Base Line. The Leading Span A forms one of the two Cloud boundaries. It is referred to as "​Leading"​ because it is plotted 26 periods in the future and forms the faster Cloud boundary. ​ This is the midpoint between the Conversion Line and the Base Line. The Leading Span A forms one of the two Cloud boundaries. It is referred to as "​Leading"​ because it is plotted 26 periods in the future and forms the faster Cloud boundary. ​
  
-**Senkou Span B (Leading Span B):** (52-period high + 52-period low)/2 \\ +**Senkou Span B (Leading Span B).** (52-period high + 52-period low)/2 \\ 
-On the daily chart, this line is the midpoint of the 52-day high-low range, ​which is a little less than months. The default calculation setting is 52 periods, but it can be adjusted. This value is plotted 26 periods in the future and forms the slower Cloud boundary.+On the daily chart, this line is the midpoint of the 52-day high-low range, a little less than three months. The default calculation setting is 52 periods, but it can be adjusted. This value is plotted 26 periods in the future and forms the slower Cloud boundary.
  
-===== Strategy =====+**Chikou Span.** The chikou span, aka “lagging span,” is the current period'​s closing price plotted 26 days back on the chart. This line shows buying pressure in relation to “current” prices, possible areas of support and resistance, and trend reversals.
  
-Chartists use the actual cloud to identify the overall trend and establish a trading bias. Once said bias is established,​ chartists will wait for a correction when prices cross the Base Line (red line). An actual signal triggers when prices cross the Conversion Line (blue line) to signal an end to the correction. ​+===== Trading Strategy Based on Ichimoku Cloud =====
  
-This trading strategy will set three criteria for a bullish signal. First, the trading bias is bullish when prices are above the lowest line of the cloud. In other words, prices are either above the cloud or remain ​above cloud support. Second, price moves below the Base Line to signal a pullback and improve the risk-reward ratio for new long positions. Third, a bullish signal triggers when prices reverse and move above the Conversion Line. +Chartists use the actual cloud to identify the overall trend and establish a trading bias. Once a bias is established,​ chartists wait for a correction when prices cross the Base Line (red line). An actual signal triggers when prices cross the Conversion Line (blue line) to signal an end to the correction.  
 + 
 +This trading strategy will set three criteria for a bullish signal. First, the trading bias is bullish when prices are above the lowest line of the cloud. In other words, prices are either above or above cloud support. Second, price moves below the Base Line to signal a pullback and improve the risk-reward ratio for new long positions. Third, a bullish signal triggers when prices reverse and move above the Conversion Line. 
  
 As you can see, the three criteria will not be met in just one day. There is a pecking order to the process. First, the trend is bullish as defined by the cloud. Second, the stock pulls back with a move below the Base Line. Third, the stock turns back up with a move above the Conversion Line.  ​ As you can see, the three criteria will not be met in just one day. There is a pecking order to the process. First, the trend is bullish as defined by the cloud. Second, the stock pulls back with a move below the Base Line. Third, the stock turns back up with a move above the Conversion Line.  ​
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 Once the trade is underway and prices move in a favorable direction, chartists should consider a trailing stop to lock in profits. The example above shows Novellus (NVLS) with the Parabolic SAR for trailing stops. The indicator window shows the Average True Range (ATR), which can be used to set a volatility-type stop. Some traders set stops two ATRs below current prices for long positions and two ATRs above current prices on short positions. Once the trade is underway and prices move in a favorable direction, chartists should consider a trailing stop to lock in profits. The example above shows Novellus (NVLS) with the Parabolic SAR for trailing stops. The indicator window shows the Average True Range (ATR), which can be used to set a volatility-type stop. Some traders set stops two ATRs below current prices for long positions and two ATRs above current prices on short positions.
  
-===== Conclusion ​=====+===== The Bottom Line =====
  
-This Ichimoku Cloud system provides chartists with a means of identifying a trading bias, spotting corrections and timing turning points. The cloud sets the overall tone and provides a longer perspective on the price trend. The Conversion Line (blue) is a relatively short-term indicator ​designed to catch turns early. Catching the turn early will improve the risk-reward ratio for trades. ​Keep in mind that this article is designed as a starting point for trading system ​development. Use these ideas to augment your trading style, risk-reward preferences and personal judgments. [[https://​stockcharts.com/​h-sc/​ui?​s=IBM&​p=D&​yr=0&​mn=6&​dy=0&​id=p35091929010|Click here]] for a chart of IBM with the Ichimoku trading strategy. ​+This Ichimoku Cloud system provides chartists with a means of identifying a trading bias, spotting correctionsand timing turning points. The cloud sets the overall tone and provides a longer perspective on the price trend. The Conversion Line (blue) is a relatively short-term indicator ​that catches ​turns early. Catching the turn early will improve the risk-reward ratio for trades. ​Remember ​that this article is designed as a starting point for developing a trading system. Use these ideas to augment your trading style, risk-reward preferencesand personal judgments. [[https://​stockcharts.com/​h-sc/​ui?​s=IBM&​p=D&​yr=0&​mn=6&​dy=0&​id=p35091929010|Click here]] for a chart of IBM with the Ichimoku trading strategy. ​
  
 ===== Suggested Scans ===== ===== Suggested Scans =====