# An Introduction On Ichimoku Cloud

## Ichimoku Cloud - Meaning and definition

The Ichimoku cloud is a collection of technical indicators that indicate support and resistance levels during intraday trading sessions. These indicators were created by Goichi Hosada (a Japanese journalist) and first appeared in a 1960s book. The trading cloud shows the trend direction and momentum, as well as the support and resistance levels. The indicator plots various trading averages on the charts and uses the figures to create a "cloud". This cloud attempts to predict the point at which the script's price will find support or resistance in the future.

The Ichimoku indicator provides more data points than a standard candlestick charts. The charts can seem complicated at first, but once you get used to them, you will be able to decode them with correctly defined trading signals.

## Ichimoku cloud formulation

Five lines make up the Ichimoku cloud, also known by formulae or calculations. Two lines form a cloud, in which the difference is shaded in. The cloud contains a 9-period, 26-period, 52-period, and a combined average of these two averages, as well as a lagging closing-price line. These are the five formulae that make up the Ichimoku cloud indicator.

1. Conversion Line (Kenkan sen) = 9-PH+9-PL/2
2. Base Line (Kijun sen) = 26-PH + 26-PL/2
3. Leading Span A (Senkou span) = CL + B/2
4. Leading Span B (Senkou spanB) = 52-PH +52-PL/2
5. Lagging span (ChikouSpan) = Close Plotted 26 times in the past

## Refer to the formula

1. PH = Period High
2. PL = Period Low
3. BL = Base Line
4. CL = Conversion Line

## Step-by-step guide to calculating Ichimoku cloud

The highs and lows represent the highest and lowest prices during a trading period. If we take into account the Conversion Line, it might be the highest and lowest prices in the last nine days. To automatically include the Ichimoku cloud indicator in your calculation chart, you can get the results. If you prefer to do your calculations manually, these are the seven steps you should follow. This is a step-by-step guide.

1. First, calculate the conversion line.

2. Next, check your previous calculations and, based on them, calculate the Leading Span. After you have completed this calculation, the data point will be plotted at 26 future periods.

3. You now need to calculate Leading Span B. You will need to plot the Span B data at 26 future periods, just like you did with Span 1.

4. The lagging span is next. Next, plot the closing price at 26 periods past on your technical analysis charts.

5. Now you will notice that the difference between Span A & B is coloured in. This creates the Ichimoku cloud.

6. If you see the Leading SpanA above the Leading SpanB, you can color the cloud green. You can also colour the cloud red if the Leading Span B appears below it.

7. Now, you will have one data point. You will need to repeat the steps above in order to create lines at the end of each period. This will allow you to create new data points each period. You can then connect all data points to create lines and clouds.

## What does the Ichimoku cloud trading strategy tell you

Here are the steps to decipher Ichimoku's cloud.

1. Static Trends

The Ichimoku trading strategy allows you to see all relevant information about your trades at a glance by using averages. The trend is upwards when the price goes above the cloud. The trend reverses when the price drops below the cloud. The trend or transition ends when the price remains at the cloud's position.

2. confirming the trend

A colour is usually assigned to a trend once it has been established. If Leading Span A rises higher than Leading Span B, it is considered an uptrend. The space between the lines can then be coloured green. If Leading Span A drops below Leading Span B it is said to be in an uptrend. The space between the lines will be coloured red.

3. The support/resistance aspect

You will use the Ichimoku Cloud to provide support and resistance areas based on your script's relative market price. The support and resistance levels can be retrieved, which could be used to project future trades. This virtue sets the Ichimoku trading clouds apart from other technical indicators that provide only support or resistance levels for current trades.

## Using the Ichimoku cloud trading strategy

You should use the Ichimoku cloud strategy with some technical indicators as a trader. This will maximize your risk-adjusted return. You can use the Relative Strength Index and the cloud strategy to confirm the momentum of a script's prices in a particular direction.

Crossovers can also be done using the Ichimoku indicator. You will need to monitor the conversion line to see if it crosses the baseline. This is important because prices above the cloud can be a strong buying signal. You can also keep the trade open until the conversion line falls below the baseline, while still using any other line for an exit point.

Last note:

It is clear that the Ichimoku cloud strategy can be a bit complicated. Before you can use it, it is important to fully understand it. For more information about Ichimoku or other trading strategies, contact an Angel One Expert.

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