Ichimoku Cloud is a very powerful indicator for swing traders, this can be used for 1 day candlestick chart for better results. Learn more by reading below points:
- The Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, as well as momentum and trend direction.
- It does this by taking multiple averages and plotting them on the chart.
- It also uses these figures to compute a “cloud” which attempts to forecast where the price may find support or resistance in the future.
- It provides more data points than the standard candlestick chart.
- While it seems complicated at first glance, those familiar with how to read the charts often find it easy to understand with well-defined trading signals.
- The Ichimoku Cloud is composed of five lines or calculations, two of which compose a cloud where the difference between the two lines is shaded in.
- The lines include a nine-period average, 26-period average, an average of those two averages, a 52-period average, and a lagging closing price line.
- The Cloud is a key part of the indicator. When price is below the cloud the trend is down. When price is above the cloud the trend is up.
- The above trend signals are strengthened if the Cloud is moving in the same direction as price.
- For example, during an uptrend the top of the Cloud is moving up, or during a downtrend the bottom of the cloud is moving down.
Ichimoku Cloud will tell you about Trend and Momentum:
- The technical indicator shows relevant information at a glance using averages.
- The overall trend is up when price is above the cloud, down when price is below the cloud, and trendless or transitioning when price is in the cloud.
- When Leading Span A is rising and above Leading Span B, this helps confirm the uptrend and space between the lines is typically colored green. When Leading Span A is falling and below Leading Span B, this helps confirm the downtrend. The space between the lines is typically colored red, in this case.
- Traders will often use the Cloud as an area of support and resistance depending on the relative location of the price. The Cloud provides support/resistance levels that can be projected into the future.
- This sets the Ichimoku Cloud apart from many other technical indicators that only provide support and resistance levels for the current date and time.
- Traders should use the Ichimoku Cloud in conjunction with other technical indicators to maximize their risk-adjusted returns.
- For example, the indicator is often paired with the relative strength index (RSI), which can be used to confirm momentum in a certain direction.
- It’s also important to look at the bigger trends to see how the smaller trends fit within them.
- For example, during a very strong downtrend, the price may push into the cloud or slightly above it, temporarily, before falling again.
- Only focusing on the indicator would mean missing the bigger picture that the price was under strong longer-term selling pressure.
- Crossovers are another way the indicator can be used.
- Watch for the conversion line to move above the base line, especially when price is above the cloud. This can be a powerful buy signal. One option is to hold the trade until the conversion line drops back below the base line.
- Any of the other lines could be used as exit points as well.