What is the Ichimoku Cloud?
The Ichimoku Cloud, or Ichimoku Kinko Hyo, is a trend indicator made of five lines that show trend direction, momentum and likely support and resistance in one view. Its default settings are 9, 26 and 52 periods. When price is above the shaded cloud the trend is generally treated as bullish, below it as bearish, and inside it as neutral or unclear.
The indicator was developed by Japanese journalist Goichi Hosoda and published in the late 1960s. The name roughly translates as "one glance equilibrium chart", because the goal is to read the state of the market at a glance. It looks busy at first, but each line has a simple calculation.
The five Ichimoku lines
Unlike moving averages, which average closing prices, most Ichimoku lines use the midpoint of the highest high and lowest low over a period.
| Line | Also called | Calculation (default settings) |
|---|---|---|
| Tenkan-sen | Conversion line | (9-period high + 9-period low) / 2 |
| Kijun-sen | Base line | (26-period high + 26-period low) / 2 |
| Senkou Span A | Leading span A | (Tenkan-sen + Kijun-sen) / 2, plotted 26 periods ahead |
| Senkou Span B | Leading span B | (52-period high + 52-period low) / 2, plotted 26 periods ahead |
| Chikou Span | Lagging span | Current close, plotted 26 periods back |
The area between Senkou Span A and Senkou Span B is the cloud, or Kumo. When Span A is above Span B the cloud is usually shaded in a bullish color, and when Span B is above Span A it is shaded in a bearish color. Because both spans are shifted forward, the cloud extends into the future and shows where support or resistance may sit ahead of price.
The 9, 26 and 52 settings are often explained by the six-day trading week used in Japan when the indicator was created: roughly a week and a half, a month and two months. Most traders keep the defaults on all markets. Some adjust them for markets that trade every day, such as crypto, but changing settings should be tested rather than guessed.
Worked example: calculating the lines
Assume these readings on a EUR/USD 4-hour chart:
- 9-period high 1.1050, low 1.0970
- 26-period high 1.1080, low 1.0920
- 52-period high 1.1150, low 1.0850
The calculations are:
- Tenkan-sen = (1.1050 + 1.0970) / 2 = 1.1010
- Kijun-sen = (1.1080 + 1.0920) / 2 = 1.1000
- Senkou Span A = (1.1010 + 1.1000) / 2 = 1.1005, plotted 26 bars ahead
- Senkou Span B = (1.1150 + 1.0850) / 2 = 1.1000, plotted 26 bars ahead
The future cloud here would run from 1.1000 to 1.1005, only 5 pips thick. A thin cloud suggests weak support or resistance ahead, while a thick cloud suggests a stronger barrier.
How to read the Ichimoku Cloud
Trend: price vs the cloud
Price above the cloud suggests an uptrend, price below it suggests a downtrend, and price inside it suggests a range or transition. Many traders only look for longs above the cloud and shorts below it, which keeps them on the side of the larger trend.
Momentum: Tenkan-sen and Kijun-sen crosses
When the Tenkan-sen crosses above the Kijun-sen, it is a bullish signal; a cross below is bearish. Traditional Ichimoku users grade these crosses by location. A bullish cross above the cloud is considered strong, inside the cloud neutral, and below the cloud weak. This works much like a fast and slow moving average crossover.
Support and resistance: Kijun-sen and the cloud
The Kijun-sen often acts as dynamic support in an uptrend and resistance in a downtrend. The edges of the cloud do the same. Traders often combine these with horizontal support and resistance levels.
Confirmation: the Chikou Span
The Chikou Span compares the current close with price 26 periods ago. If it sits above past price, that supports a bullish reading. If it is tangled in past price action, the trend signal is weaker.
Future cloud color
A change in the future cloud from bearish to bullish, called a Kumo twist, can signal a possible shift in trend. On its own it is an early and often noisy signal.
A simple Ichimoku trend setup
A common rules-based approach for long trades, reversed for shorts, looks like this:
- Price closes above the cloud.
- The future cloud is bullish (Span A above Span B).
- Tenkan-sen is above Kijun-sen.
- Chikou Span is above the price from 26 periods ago.
- Enter on a pullback toward the Tenkan-sen or Kijun-sen that holds, with a stop below the Kijun-sen or the cloud.
Continuing the example, suppose EUR/USD pulls back and holds above the Kijun-sen at 1.1000. You buy at 1.1030 with a stop at 1.0990, which is 40 pips of risk. On 0.10 lots, where a pip is worth $1, that is $40 at risk. A target of twice the risk, 80 pips, puts the take profit at 1.1110 for a potential $80 gain. Check pip values for other pairs with the pip value calculator.
Some traders set stops using volatility instead, for example a multiple of the Average True Range below the Kijun-sen, so the stop reflects how much the market normally moves.
Strengths and limitations
Ichimoku packs a lot into one indicator and gives a clear framework for trend trading. It works well for the trend following strategy family, where the main job is to stay with the trend and avoid counter-trend trades.
The weaknesses are worth knowing:
- Lag. Every line is based on past highs and lows, so signals come after the move has started.
- Poor in ranges. When price chops in and around the cloud, crosses produce many false signals.
- Visual clutter. Five lines plus a cloud can hide price action. Some traders show only the cloud and Kijun-sen.
- Not a complete system. It does not set position size or tell you how much to risk.
If you want to see how Ichimoku compares with lighter tools for short timeframes, read our guide to the best indicators for day trading, or browse the full trading indicators library.
Trading involves substantial risk of loss. Ichimoku signals are based on past prices and can fail, especially in sideways markets. This guide is for education only and is not financial advice. Read our full risk disclaimer.