In my 40+ years of analyzing charts, the Ichimoku Cloud is one of the most unique and interesting indicators I've encountered. To be useful, most technical tools need to be used in tandem with others to reduce the number of false signals. The Cloud provides information about the past present and future allowing many to achieve success using it without confirmation from other indicators. While complex looking, it is easy to understand and use. The Ichimoku Cloud is currently available in both Personal Hotline and HotlineX.
In my 40+ years of analyzing charts, the Ichimoku Cloud is one of the easiest and best trend identifiers I've seen to date.
This charting system was developed by a Japanese journalist after WWII. Since this was pre computers, he hired students to do today's equivalent of back testing. In 1968, after 20 years developing his system Mr. Hosoda published his results and the system in a book. The system was popular in Japan for decades and only recently became popular with traders and investors in the rest of the world.
Components of the Cloud
Tenkan-sen or the Conversion Line - This is the blue line that runs through prices like a moving average. It is the midpoint be the highest high and the lowest low achieved in the past 9 days.
Kijun-sen or the Base Line - This is the red line that runs through the prices like a moving average. It is the midpoint of the highest high and the lowest low for the past 26 periods.
Senkou Span A - Senkou is a japanese synonym of the english word future. Span A is calculated as the midpoint between the conversion and the the base line calculations. The result is then projected forward 26 periods
Senkou Span B - Span B is the midpoint between the highest high and the lowest low over the past 52 periods. The result is projected 26 periods into the future.
The Cloud The cloud is bounded by the two senkou lines. It is shaded green if Span A is higher than Span B and red if Span B is higher than Span A
Analyzing the Cloud
Knowing the direction of the trend and its strength are two of the most important factors for most every style of trading and investing and the cloud allows you to determine this in a single glance. When prices are above the cloud, the trend is up. If the cloud is green then the uptrend is strong. Conversely when prices are below the cloud, the trend is down and if the cloud is red the downtrend is strong. When prices are in the cloud, the trend is flat or undetermined.
Generally it is recommended to trade with the trend and to use the prices of the conversion and the base line as support and resistance levels for entry and exit points.
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