Overlays · Indicator
Ichimoku combines five lines into a cloud that shows trend, momentum and support or resistance for one instrument in a single view.
Overview
Ichimoku Kinko Hyo, developed by the Japanese journalist Goichi Hosoda and published in the 1960s, uses five components: Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B and the Chikou Span. Together they form a 'cloud' that shows trend direction, momentum, and key support and resistance in a single view. The name translates roughly as 'one-glance equilibrium chart', which describes the design goal of reading the whole picture without consulting several separate indicators.
Two features make Ichimoku unusual. First, the lines are midpoints of high-low ranges rather than averages of closes, so they sit at the centre of where price has traded rather than being pulled around by closing prints. Second, parts of the system are deliberately displaced in time: the cloud is projected forward, so it shows support and resistance ahead of current price, and the Chikou Span is plotted backwards to compare today's close with price from several weeks ago.
The cloud, or Kumo, is the shaded area between the two Senkou lines. Its colour shows which of the two is on top, and its thickness shows how far apart they are, which corresponds to how much disagreement there is between the medium-term and longer-term ranges. A thick cloud is treated as a substantial barrier; a thin one is easier for price to pass through.
How it is calculated
Tenkan-sen and Kijun-sen are the midpoints of the highest high and lowest low over their respective periods, a conversion line and a base line. Senkou Span A is the midpoint of those two lines, projected forward by the Kijun period. Senkou Span B is the midpoint of the highest high and lowest low over the longest period, also projected forward.
The Chikou Span is simply the current close displaced backwards by the Kijun period, which lets you see at a glance whether today's price is above or below where the market was trading then.
The traditional settings of 9, 26 and 52 date from a six-day trading week, where 26 approximated a month and 52 two months. They remain the convention, though the underlying calendar logic no longer applies to five-day markets.
Tenkan-sen = (highest high + lowest low) / 2 over Tenkan periods Kijun-sen = (highest high + lowest low) / 2 over Kijun periods Senkou A = (Tenkan-sen + Kijun-sen) / 2, plotted Kijun periods ahead Senkou B = (highest high + lowest low) / 2 over Senkou periods, plotted Kijun periods ahead Chikou Span = close, plotted Kijun periods behind Cloud (Kumo) = the area between Senkou A and Senkou B
Inputs
How to read it
Read position relative to the cloud first. Price above the cloud is the system's definition of an uptrend, price below it a downtrend, and price inside it a market without a clear direction where most Ichimoku signals are considered unreliable. Cloud thickness indicates how much resistance or support a return to it would meet.
Then read the two fast lines. Tenkan above Kijun is a bullish alignment and the reverse is bearish, and the Kijun in particular is widely used as an equilibrium level that price tends to return to. A flat Kijun often acts as a magnet, since it marks the midpoint of a range that has not changed.
Finally check the Chikou Span. If the displaced close is above the price action from that period, the current market is stronger than it was then, with no overhead prints from that window to work through. If it is tangled inside old price action, the signal is considered clouded regardless of what the other components say.
The system is designed to be read as a whole. A signal that has price above the cloud, Tenkan above Kijun, a clear Chikou and a rising cloud ahead is considered a full alignment, while a signal with only one or two of those in place is considerably weaker.
Signals to look for
Price closing above the cloud after trading below it, or below after trading above, is the system's principal trend-change signal. Breaks through a thin part of the cloud are treated as easier and less decisive than breaks through a thick section.
The conversion line crossing the base line is the faster momentum signal. Its weight depends on where the cross occurs: above the cloud is considered a strong bullish cross, inside the cloud a weak one.
The two Senkou lines crossing in the projected section ahead of price marks a change in the cloud's colour at a known future bar, which traders watch as a potential inflection point for the trend.
In a trend, a pullback to a flat or gently sloping base line that holds is a common continuation reference, since the Kijun represents the midpoint of the recent range.
Limitations
Frequently asked questions
Ichimoku combines five lines into a cloud that shows trend, momentum and support or resistance for one instrument in a single view.
Read position relative to the cloud first. Price above the cloud is the system's definition of an uptrend, price below it a downtrend, and price inside it a market without a clear direction where most Ichimoku signals are considered unreliable. Cloud thickness indicates how much resistance or support a return to it would meet.
Kumo breakout: Price closing above the cloud after trading below it, or below after trading above, is the system's principal trend-change signal. Breaks through a thin part of the cloud are treated as easier and less decisive than breaks through a thick section.
The cloud is projected forward from data that already exists, so the section ahead of price is not a forecast. It shows where the boundaries will be if price does nothing, and it moves as new bars arrive.
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