What it means
Ichimoku has five lines. Tenkan-sen: midpoint of the last 9 highs and lows. Kijun-sen: midpoint of the last 26. Senkou span A: average of tenkan and kijun, plotted 26 periods ahead. Senkou span B: midpoint of the last 52, plotted 26 ahead. Chikou span: the close plotted 26 periods back.
The area between span A and span B is the cloud (kumo).
Why traders use it
It is a complete trend system: price above the cloud and tenkan above kijun suggests an uptrend; the cloud acts as a support or resistance zone.
Chart examples
Ichimoku lines in an uptrend
How to identify it objectively
- 1Price above the cloud: bullish environment; below: bearish; inside: neutral.
- 2Tenkan crossing above kijun: bullish momentum signal.
- 3A thick cloud ahead: stronger support or resistance.
- 4This drawing shortens the periods (3, 6, 9, shift 3) so it fits.
Bullish use
- 1Price above the cloud.
- 2Tenkan above kijun.
- 3Pullbacks to kijun or the cloud top as entry areas.
Bearish use
- 1Price below the cloud.
- 2Tenkan below kijun.
- 3Rallies to kijun or the cloud bottom as entry areas.
What confirms it
- All components agree.
- Chikou span free of price.
What invalidates it
- Price enters the cloud: neutral zone.
How a hypothetical setup is built
Entry
On a bounce from kijun with price above the cloud.
Stop
Below the cloud or the swing low.
Target
Prior high, or trail with kijun.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Many lines can give conflicting signals.
- Original settings were designed for a six-day trading week.
- Lags in fast markets.
Knowledge check
Pick an answer to see the explanation. Nothing is saved.