Ichimoku Kinko Hyo is a technical analysis technique that means “one look equilibrium chart”. It means even with one glance, traders can get tons of information through this chart and perform better in Stock trading. Ichimoku cloud is tailored to detect the momentum and direction to help you make better decisions to buy and sell assets more conveniently.
Why Ichimoku Cloud Trading Strategy?
With the help of the Ichimoku cloud trading strategy, the losses are controlled and kept small. It helps the investors to decide the most appropriate time to enter and exit the market by helping you with the trend directions as well. It provides you with resistance and support levels & helps to understand the strength of market signals.
At any given time, there are five lines on the chart that give you genuine trade indicators.
Types of Indicators on the Ichimoku Chart
- Tenkan-Sen line: The Tenken Sen line is also known as a conversion line. It shows the midpoint of the last nine candlesticks. Compared to Kijun Sen, it is less accurate because of its lesser period. To calculate it one can use this formula: [(9-period high + 9-period low)/2].
- Kijun-Sen line: Kijun Sen Line is also known as a baseline. It shows the midpoint of the last 26 candlesticks. Because of its long time, it is considered to be more accurate. To calculate it one can use this formula: [(26-period high + 26-period low)/2].
- Chiou Span: Chiou Span is also known as legging span. The Lagging Span is marked 26 periods back
- Senkou Span A: Senkou Span A is also known as the leading span. It is the midpoint between the Base Line and conversion Line and portrays one out of two cloud boundaries. This value is marked 26 periods into the future, and it’s the faster Cloud boundary.
- Senkou Span B: Leading span B, or Senkou Span B, is the midpoint of the last 52 price candles. It portrays the second cloud boundary. Formula to calculate Senkou span B is [(52-period high + 52-period low)/2]
- Chikou Span: Chikou span portrays the closing price and is marked 26 days back.
How to Use The Ichimoku Cloud Indicator?
Reading a graph is very easy by using these five trend lines. The region between Senkou Span A(Leading span A) and Senkou span B(Leading spn B) is known as the cloud. Kumo is a Japanese word that means “cloud”. When the prices change, the shape and height of Kumo also change that ultimately affects resistance and support levels.
Resistance and support levels are considered weak when the clouds are thin. The price can be penetrated through these levels much more easily.
When the Leading Span A (Senkou Span A) line jumps above the Leading Span B (Senkou Span B) line, then the trend is bullish.
When the Leading Span (A Senkou Span A) line falls below the Leading Span B (Senkou Span B) line, the trend is bearish.
Trend reversal may be seen when the Leading Span A (Senkou Span A) and Leading Span B (Senkou span B) lines switch their positions, leading to Ichimoku cloud twists.
Buy & Sell Signals
A buy signal is made when the Chikou line is green in colour jumps from the price action to cross above it. Similarly, a sell signal is made when the Chikou line (green line) pass over below the price action.Bottom Line
Ichimoku cloud trading strategy is different from other strategies that you have used until now. If you are finding a Stock trading strategy that is effective and easier, then the Ichimoku cloud trading strategy is the one that you are looking for. Top brokers such as Zerodha & Upstox provide Ichimoku cloud charting so that you can easily find out the technical signal.