In many trading systems only the cloud of Ichimoku indicator can be used (Ichimoku Kinko Hyo). Therefore, there is a need to remove the rest of the indicator lines from a chart.
In such a situation it is better to have the indicator without any extra lines. This indicator is exactly of that kind.
Author: Nikolay Kositsin
Ichimoku Cloud (based on The Definitive Guide to Trading Trends with Ichimoku Cloud article)
Many traders are asked what indicator they would
wish to never do without. The answer has never wavered as there is one
indicator that clearly illustrates the current trend, helps you time
entries, displays support and resistance, clarifies momentum, and shows
you when a trend has likely reversed. That indicator is Ichimoku Kinko
Hyo or more casually known as Ichimoku.
Ichimoku is a technical or chart indicator that is
also a trend trading system in and of itself. The creator of the
indicator, Goichi Hosada, introduced Ichimoku as a “one glance”
indicator so that in a few seconds you are able to determine whether a
tradable trend is present or if you should wait for a better set-up on a
Before we break
down the components of the indicator in a clear and relatable manner,
there are a few helpful things to understand. Ichimoku can be used in
both rising and falling markets and can be used in all time frames for
any liquid trading instrument. The only time to not use Ichimoku is when
no clear trend is present.
Always Start With the Cloud
The cloud is
composed of two dynamic lines that are meant to serve multiple
functions. However, the primary purpose of the cloud is to help you
identify the trend of current price in relation to past price action.
Given that protecting your capital is the main battle every trader must
face, the cloud helps you to place stops and recognize when you should
be bullish or bearish. Many traders will focus on candlesticks or price
action analysis around the cloud to see if a decisive reversal or
continuation pattern is taking shape.
In the simplest
terms, traders who utilize Ichimoku should look for buying entries when
price is above the cloud. When price is below the cloud, traders should
be looking for temporary corrections higher to enter a sell order in the
direction of the trend. The cloud is the cornerstone of all Ichimoku analysis and as such it is the most vital aspect to the indicator.
Time Entries with the Trigger & Base Line
Once you have
built a bias of whether to look for buy or sell signals with the cloud,
you can then turn to the two unique moving averages provided by
Ichimoku. The fast moving average is a 9 period moving average and the
slow moving average is a 26 period moving average by default. What is
unique about these moving averages is that unlike their western
counterparts, the calculation is built on mid-prices as opposed to
closing prices. I often refer to the fast moving average as the trigger
line and the slow moving average as the base line.
components are introduced in a specific order because that is how you
should analyze or trade the market. Once you’ve confirmed the trend by
recognizing price as being below or above the cloud, you can move to the
moving averages. If price is above the cloud and the trigger crosses
above the base line you have the makings of a buy signal. If price is
below the cloud and the trigger crosses below the base line you have the
makings of a sell signal.
Confirm Entries with the Mysterious Lagging Line
In addition to the mystery of the cloud, the lagging
line often confuses traders. This shouldn’t be the case as it’s a very
simple line that is the close of the current candle pushed back 26
periods. When studying Ichimoku, I found that this line was considered
by most traditional Japanese traders who utilize mainly Ichimoku as one
of the most important components of the indicator.
Once price has broken above or below the cloud and
the trigger line is crossing the base line with the trend, you can look
to the lagging line as confirmation. The lagging line can best confirm
the trade by breaking either above the cloud in a new uptrend or below
the cloud in a developing downtrend. Looking above, you can see that the
trend often gathers steam nicely after the lagging line breaks through
the cloud. Another benefit of using the lagging line as a confirmation
indicator is that the lagging line can build patience and discipline in your trading
because you won’t be chasing the initial thrust but rather waiting for
the correction to play out before entering in the direction of the
Trading With Ichimoku Checklist
Now that you know the components of Ichimoku here is
a checklist that you can print off or use to keep the main components
of this dynamic trend following system:
1.Where is Price in Relation to the Cloud?
2. Is price consistently on one side of the cloud or is price whipping around on both sides consistently?
3. Which level of the Ichimoku would like to use to place your stop?
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2014.01.07 07:56
Watch Price In Relation To Ichimoku Cloud (adapted from dailyfx article)
Ichimoku is a trend following indicator that almost anyone can learn to
use with ease. When trading with Ichimoku, you’re often advised to start
with the cloud to get a feel for whether or not price is trending up or
down to past points on the chart. However, to get a better feel for the
strength of the trend, it is better to see how price is reacting to the
cloud rather than only looking where price is in relation to the cloud
at any point in time.
Price & Cloud Interactions
USDJPY Has Demonstrated a Strong Trend Due To Multiple Cloud Bounces:
The cloud is a dynamic indicator that takes into consideration two
aspects of a currency pair. In an uptrend, the top line of the cloud,
traditionally known as Senkou Span A is composed of the mid-point
between the 9 & 26 moving average based on mid-prices, or Tenkan-Sen
& Kijun-Sen, and pushed forward 26-periods in order to give you a
reference for the strength of a move. If current price is above the
cloud, then current price is stronger than the mid-point of the 9 &
26 moving average from 26-periods ago, identifying the strength of the
The cloud’s bottom line in an uptrend, traditionally known as Senkou
Span B, is composed of the mid-point over the last 52-periods on the
chart and is also pushed forward 26-periods just like the top line.
Therefore, if the current candle is above the cloud, which was created
from 26-periods ago, then you can see that price is above both the
mid-point of the 9 & 26 moving average as well as the mid-point over
the last 52-sessions.
Price Bouncing Off Cloud Shows You a Well-Supported Trend
The key point of this article is that it’s not enough to simply know
where price is in relation to the cloud to have a strong trend based
trade. What you need to do is see if price is consistently on one side
of the cloud or if price flips on either side of the cloud showing a
very weak or non-existent trend. If there is no consistency with price
and is consistently bouncing higher off the cloud proving the cloud as
support and that the uptrend is strong, then it is best to take Ichimoku
off your charts as Ichimoku doesn’t work well in ranges and will likely
only clog up the charts if there is no clear trend.
A Cloud & Price Example Trade with USDJPY
Entry to Buy: 105.00 (Breakout through resistance)
Stop: 103.70 (recent price action low and below May 2013 High – Pivotal Support)
Limit: 107.50 (Monthly R2 Pivot)
If this is your first reading of the Ichimoku report, here is a definitive guide on the versatile indicator: