Lesson 4 of 8 · 8 min
The Ichimoku cloud
The five Ichimoku lines with the standard 9, 26 and 52 settings, how the cloud and lagging line are shifted, and why it is a trend tool that struggles in ranges.
By the end you'll be able to
- Calculate the tenkan, kijun and both cloud spans from highs and lows
- Read price against the cloud, tenkan against kijun, and the lagging line
- Explain why Ichimoku works as a trend tool and struggles in ranges
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Ichimoku puts five lines and a shaded cloud on the chart at once, so it looks like a complete trading system. Underneath, it is two moving midpoints, two more midpoints shifted forward, and the close shifted back.
Five lines from highs and lows
Illustrative EUR/USD H4 prices: a base, an uptrend, then a flattening. Ichimoku at the standard 9 / 26 / 52.
Ichimoku Kinko Hyo (“one-glance equilibrium chart”) was developed by the Japanese journalist Goichi Hosoda and published in the late 1960s. Its standard settings are 9, 26 and 52 candles, usually explained by the six-day trading week of the time. Most forex charts keep them.
- Tenkan-sen (conversion line): the midpoint of the last 9 candles, (highest high + lowest low) ÷ 2.
- Kijun-sen (base line): the same midpoint over 26 candles.
- Senkou span A: (tenkan + kijun) ÷ 2, plotted 26 candles ahead.
- Senkou span B: the 52-candle midpoint, also plotted 26 candles ahead.
- Chikou span (lagging line): the latest close, plotted 26 candles back.
The area between span A and span B is the cloud (kumo). It is green while span A is above span B and red while span B is on top.
Midpoints behave differently from moving averages. They stay flat until a new high or low enters or an old one drops out of the window, then they jump. A flat kijun often marks a sideways market.
How it is read
The usual reading has three parts:
- Price against the cloud. Above the cloud is read as an uptrend, below as a downtrend, inside as no clear trend. A thick cloud means past highs and lows were far apart, so price has more ground to cross.
- Tenkan against kijun. Tenkan above kijun says the short-term midpoint is rising faster, much like a fast moving average above a slow one.
- Lagging line. A close above the price of 26 candles ago agrees with an uptrend.
When all three agree, the chart is trending. When they disagree, it usually is not.
What it cannot do
The cloud drawn ahead of price is not a forecast. It is made from highs and lows that have already happened, moved 26 candles to the right. Everything in Ichimoku is built from past prices, so it lags like any trend tool.
In a range, price drifts in and out of a thin, flat cloud while tenkan and kijun cross back and forth. Each cross looks like a signal and most of them lead nowhere. Ichimoku also says nothing about where to put a stop loss or how much to risk; those still come from price levels and your own sizing rules.
Try it
Move the reading point on the chart above back to candle 1, where price sits below the cloud. Slide forward to candle 15, where price has broken above the cloud and the cloud ahead has turned green. Then go to the last candle: price is still above the cloud, but tenkan has slipped under kijun and the lagging line is below the price of 26 candles earlier. Turn the lines off one at a time to see which part is telling you what.
Quick check
Quick check
Question 1 of 4
The last 26 candles have a high of 1.0980 and a low of 1.0900. What is the kijun?
Question 2 of 4
Why does the cloud extend 26 candles past the last price?
Question 3 of 4
Price is inside a thin, flat cloud and tenkan has crossed kijun three times this week. What is the best reading?
Question 4 of 4
What does the lagging line (chikou) show?
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