Ichimoku cloud - Definition

The Ichimoku Cloud, ao known as Ichimoku Kinko Hyo, is an indicator that defines Support and Resistance, judge entry/exit points and can be used to Trend direction as part of Technical Analysis. It is also effective in providing trading signals which can be used to estimate Momentum. It later became known as the "Ichimoku Cloud" since the most characteristic feature of the indicator is the cloud (Kumo), which is designed to represent various levels of support and resistance. The cloud represents past levels of support and levels of resistance. In a bullish trend, the price is higher than the cloud, and the TOP of the cloud acts as a support level. In a bearish trend, the price is below the cloud, and the cloud bottom acts as a resistance level.

Five lines make up ichimoku kinko hyo: tenkan sen (turning line), kijun sen (standard line), chikou span (lagging line), senkou span A (first leading line) and senkou span B (second leading line). The formulas are as follows:

- Tenkan Line; (highest high + lowest low)/2 calculated over last 9 periods - is a moving average of the Asset's price over the past nine periods.

- Kijun line; (highest high + lowest low)/2 calculated over last 26 periods - is a moving average of the asset's price over the past 26 periods.

- Chikou Span; (most current closing price plotted 26 time periods back - highlights the space between senkou span A and B to form the ichimoku cloud.

- Senkou Span A; (Tenkan line + Kijun Line)/2 plotted 26 time periods ahead

- Senkou Span B; (highest high + lowest low)/2 calculated over past 52 time periods, sent 26 periods ahead

The ichimoku cloud was developed by Goichi Hosoda in the 1968 after 20 years of testing. Since then, Asian traders have used the system to analyze various assets, including stocks, currencies, commodities and futures. It is more accurate than simple candlestick charts because it provides more data points.

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