Ichimoku Cloud: The All-in-One Indicator Explained
Ichimoku Kinko Hyo provides support, resistance, trend direction, and momentum in a single glance. Here's how CFD traders can use it. Cloud, tenkan, kijun and.
What Is Ichimoku Cloud?
Created by Japanese journalist Goichi Hosoda in the 1930s, Ichimoku Cloud (Ichimoku Kinko Hyo) translates to 'equilibrium chart at a glance'. It provides five components that together show trend direction, support/resistance, and momentum.
The Five Components
- Tenkan-sen (Conversion Line): 9-period midpoint — fastest line, shows short-term momentum
- Kijun-sen (Base Line): 26-period midpoint — confirms trend and acts as support/resistance
- Senkou Span A (Leading Span A): Average of Tenkan and Kijun, plotted 26 periods ahead — forms the cloud
- Senkou Span B (Leading Span B): 52-period midpoint, plotted 26 periods ahead — forms the other side of the cloud
- Chikou Span (Lagging Span): Close plotted 26 periods back — confirms momentum
Reading the Cloud
Price above the cloud = uptrend. Price below the cloud = downtrend. Price inside the cloud = ranging/consolidating.
The cloud itself acts as dynamic support/resistance. Thicker clouds provide stronger support/resistance. When Senkou Span A crosses above Senkou Span B, the cloud turns green (bullish). When it crosses below, the cloud turns red (bearish).
Trading Signals
- Strong buy: Price above cloud, Tenkan crosses above Kijun, Chikou above price
- Strong sell: Price below cloud, Tenkan crosses below Kijun, Chikou below price
- Weak signal: Price inside cloud — wait for a breakout
Practical CFD Application
Use the daily chart for trend direction and the 1H chart for entries. Only take trades in the direction of the daily cloud. Enter on Tenkan/Kijun crossovers that align with the daily trend. Place stops on the opposite side of the cloud.
Ichimoku works well on liquid instruments: EUR/USD, GBP/USD, XAU/USD, and major indices. Avoid using it on low-liquidity instruments where the cloud signals are less reliable.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.