The Ichimoku Cloud is a technical indicator used to identify support and resistance levels, trends, measure momentum, and provide trading signals.
Ichimoku Cloud full name is Ichimoku Kinko Hyo, a technical analysis indicator developed by Mr. Satoru Hosoda, Japanese journalist, and perfected in 1969.
This indicator is called the Ichimoku cloud because it has a cloud-like shape. It is built based on moving averages, helping to see information for trading such as price trends, support and resistance levels, entry and exit signals. The Ichimoku indicator set is composed of 5 moving averages, including:
- Tenkan-sen line (conversion line): is determined by taking the sum of the highest high and lowest low within 9 trading sessions divided by 2.
- Kijun-sen line (baseline): is determined by taking the sum of the highest high and the lowest low within 26 trading sessions divided by 2.
- Senkou Span A: This line is determined by taking the sum of the Tenkan-sen line and the kijun-sen line and then dividing it by 2. Normally the Senkou Span A line will be drawn 26 trading sessions ahead.
- Senkou Span B: This line is determined by dividing the sum of the highest high and the lowest low within 52 sessions divided by 2. Like the Senkou Span A line, this line is also drawn 26 sessions forward. transaction.
- Chikou Span Street: also known as the late line. The values of the Chikou-Span line are the closing price of the current session, drawing back (past) 26 sessions.
The two Senkou Span lines A and B form an area shaped like a cloud, called the Ichimoku cloud, also known as Kumo.
The Ichimoku indicator set with the Kumo cloud zone is made up of 2 Senkou Span lines A and B, the conversion line (blue), the baseline (red) and the lagging line (green). Photo: TradingView
The Ichimoku indicator set with the Kumo cloud zone is made up of 2 Senkou Span lines A and B, the conversion line (blue), the baseline (red) and the lagging line (green). Photo: TradingView
If Kumo has the Senkou-Span A line above it, it is called a rising cloud, the cloud will be blue. Conversely, if Senkou-Span B is above, it is called a falling cloud, the cloud area will be red. Based on the Kumo cloud, investors can recognize a number of market trends.
When the Kumo cloud turns from red to blue, the Senkou Span A line cuts the Senkou Span B from the bottom up, signaling the possibility of an increase in price. Meanwhile, the Kumo cloud turns from blue to red, ie the Senkou Span A cuts the Senkou Span B from the top, warning of a downtrend.
If the price is above the cloud then the price tends to move higher and conversely, if the price is below the cloud then the price is likely to continue to fall. Where the price is inside the cloud, the market trend is not clear.
In addition, the thicker the cloud, the more active the market is, and vice versa, when the thin cloud is seen, the market is gloomy. For example, a thick blue cloud shows that buying is dominating, and a thick red cloud shows that selling is overwhelming.
Investors can also rely on the change of the moving averages to predict the direction of the price.
When the conversion line goes up above the standard line, signaling the possibility of an increase in the price, investors should place a buy order. On the contrary, when the conversion line cuts below the standard line, the price will decrease, investors consider placing a sell order.
Or when the Chikou Span line cuts the price line from below, signaling the price will increase, while the Chikou Span line cuts the price line from the top, the price will likely decrease.
The Ichimoku Cloud is considered an advanced technical indicator, providing more information than conventional technical analysis tools. However, this is not a perfect indicator of analysis.
Cloud Ichimoku is a trend trading system so there is usually a certain lag. In an uncertain market, Ichimoku can give false signals. Although it can be used independently, investors should still combine Ichimoku with other indicators to minimize trading risks.
Comments
Post a Comment