Ichimoku cloud
The Ichimoku cloud is a set of five lines drawn from highs and lows that shows trend direction, a support and resistance band (the cloud) and momentum on one chart.
How Ichimoku cloud is calculated
Tenkan = midpoint of the highest high and lowest low over 9 bars. Kijun = the same over 26 bars. Senkou A = (Tenkan + Kijun) / 2, plotted 26 bars ahead. Senkou B = midpoint over 52 bars, plotted 26 bars ahead. The cloud is the area between Senkou A and B. Chikou is the close plotted 26 bars back. Goichi Hosoda published it in the late 1960s.
How it is read
Price above the cloud is read as an uptrend and below as a downtrend. A thick cloud is read as a stronger level than a thin one.
Common mistakes
- Using the 9, 26 and 52 settings on markets that trade 24 hours or on short timeframes without knowing they were set for a Japanese six-day week.
- Counting five lines as five confirmations. All of them come from the same highs and lows.
- Forgetting the cloud is plotted forward, so it draws zones that were computed from past data only.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.