The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a technical analysis indicator that shows trend direction, momentum, and support and resistance levels in one view. Japanese journalist Goichi Hosoda developed the Ichimoku Cloud in the 1930s and published it in 1969, and the name translates to "one-look equilibrium chart."
The Ichimoku Cloud uses 5 lines: 1) the Conversion Line, 2) the Base Line, 3) Leading Span A, 4) Leading Span B, and 5) the Lagging Span. The area between Leading Span A and Leading Span B forms the cloud, which traders use to judge the trend at a glance.
What Is the Ichimoku Cloud?
The Ichimoku Cloud is a trend-following indicator that plots 5 lines on a price chart to measure trend direction, momentum & support resistance. With one look at those lines, a trader can judge 1) the trend, 2) momentum, and 3) support and resistance levels, which is where the name "one-look equilibrium chart" comes from.
Goichi Hosoda, a Japanese journalist, developed the Ichimoku Cloud in the 1930s and refined it for decades before publishing it in his 1969 book. Hosoda released the Ichimoku Cloud as an all-in-one trading system for the Japanese stock market, and traders later adopted it in currency and commodity markets.
The Ichimoku Cloud looks crowded the first time you see it on a chart, but each rule is simple to check. The Ichimoku Cloud works best in trending markets and is much less effective during consolidation.
Ichimoku Cloud Formula: What Are the Five Lines?
The Ichimoku Cloud formula has 5 lines, and 4 of the 5 lines are based on the midpoint of the highest high and lowest low over a set number of periods. A period is one candle on the timeframe you are viewing, so 9 periods on a daily chart means 9 days. The Lagging Span is the exception, because the Lagging Span uses the closing price only.
| Line | Formula | Plotted | Job |
|---|---|---|---|
| Conversion Line (Tenkan-sen) | (9-period high + 9-period low) / 2 | On the current candle | Short-term momentum |
| Base Line (Kijun-sen) | (26-period high + 26-period low) / 2 | On the current candle | Medium-term trend |
| Leading Span A (Senkou Span A) | (Conversion Line + Base Line) / 2 | 26 periods ahead | Faster cloud boundary |
| Leading Span B (Senkou Span B) | (52-period high + 52-period low) / 2 | 26 periods ahead | Slower cloud boundary |
| Lagging Span (Chikou Span) | Current closing price | 26 periods back | Trend confirmation |
The 5 Ichimoku Cloud lines on an illustrative EUR/USD daily chart. Leading Span A and Leading Span B are plotted 26 periods ahead of the current candle, and the Lagging Span is plotted 26 periods back. Prices are simulated for teaching.
Conversion Line (Tenkan-sen)
Conversion Line (Tenkan-sen) = (9-period high + 9-period low) / 2
The Conversion Line is the midpoint of the highest high and lowest low over the last 9 periods, which is almost 2 weeks on a daily chart. The Conversion Line is the fastest of the 5 lines, so it follows price closely and shows short-term momentum.
A high-low midpoint was easier to calculate by hand than a 9-day moving average before computers were widely available. The same midpoint method is used for the Base Line and Leading Span B.
Base Line (Kijun-sen)
Base Line (Kijun-sen) = (26-period high + 26-period low) / 2
The Base Line is the midpoint of the highest high and lowest low over the last 26 periods, which is almost one month on a daily chart. The Base Line moves more slowly than the Conversion Line and shows the medium-term trend.
The Base Line also acts as a support and resistance level. Price holding above the Base Line shows bullish strength, and price holding below the Base Line shows bearish pressure.
Leading Span A (Senkou Span A)
Leading Span A (Senkou Span A) = (Conversion Line + Base Line) / 2, plotted 26 periods ahead
Leading Span A is the midpoint between the Conversion Line and the Base Line, plotted 26 periods ahead of the current candle. Leading Span A forms the faster cloud boundary, because it is built from the 9-period and 26-period lines and reacts more quickly to price changes than Leading Span B.
Leading Span B (Senkou Span B)
Leading Span B (Senkou Span B) = (52-period high + 52-period low) / 2, plotted 26 periods ahead
Leading Span B is the midpoint of the highest high and lowest low over the last 52 periods, plotted 26 periods ahead of the current candle. On a daily chart, 52 periods is a little less than 3 months, so Leading Span B forms the slower cloud boundary.
A rising Leading Span B points to an uptrend, and a falling Leading Span B points to a downtrend.
Lagging Span (Chikou Span)
Lagging Span (Chikou Span) = Current closing price, plotted 26 periods back
The Lagging Span is the current closing price plotted 26 periods behind the current candle. The Lagging Span needs no calculation, and traders use it to compare the current close with price action 26 periods ago.
How Is the Ichimoku Cloud Formed?
The cloud, also called the Kumo, is the area between Leading Span A and Leading Span B. The cloud is the most visible part of the Ichimoku Cloud, and traders use the cloud to identify the overall trend and to find support and resistance levels.
Leading Span A and Leading Span B cross each other as the trend changes, and each crossover changes the color of the cloud. The distance between the 2 lines sets the thickness of the cloud.
What Do Green and Red Ichimoku Clouds Mean?
A green cloud forms when Leading Span A is above Leading Span B, and a green cloud is bullish. A red cloud forms when Leading Span A is below Leading Span B, and a red cloud is bearish.
The uptrend is strengthening when Leading Span A is rising and above Leading Span B. The downtrend is strengthening when Leading Span A is falling and below Leading Span B, and a steeper cloud points to a stronger trend, as it does with moving averages.
What Does Ichimoku Cloud Thickness Mean?
A thick cloud shows stronger support and resistance. A thin cloud shows weaker support and resistance, and a thin cloud can point to a possible reversal.
The cloud gets thicker during a strong trend, because Leading Span A reacts quickly while Leading Span B reacts slowly. The cloud gets thinner as Leading Span A and Leading Span B move closer together, which usually happens before the 2 lines cross.
Why Is the Ichimoku Cloud Plotted 26 Periods Ahead?
Leading Span A and Leading Span B are plotted 26 periods ahead, so the cloud extends to the right of the current candle. Traders call the Ichimoku Cloud forward-looking because the cloud shows possible support and resistance levels before price reaches them.
The cloud ahead of price is built entirely from prices that have already closed. Every point on the forward cloud is a past midpoint shifted 26 periods to the right, so the forward cloud shows where those midpoints land on the chart.
| Important: Price can trade straight through the forward cloud, because the forward cloud is built from closed prices and carries no forecast of future prices. |
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How to Read the Ichimoku Cloud
To read the Ichimoku Cloud, traders make 3 checks: 1) where price sits relative to the cloud, 2) whether the cloud is acting as support or resistance, and 3) whether the Lagging Span confirms the trend.
An illustrative EUR/USD daily chart showing consolidation, an uptrend and a downtrend relative to the cloud, with the cloud acting as support and resistance. Prices are simulated for teaching.
Identifying Trends
The position of price relative to the cloud identifies the trend. The cloud then acts as support or resistance depending on which side of the cloud price is on.
| Price position | Trend | Role of the cloud |
|---|---|---|
| Price above the cloud | Uptrend | Support |
| Price below the cloud | Downtrend | Resistance |
| Price inside the cloud | Consolidation | The edges of the cloud are the breakout levels |
The uptrend is stronger when price is above a green cloud, and the downtrend is stronger when price is below a red cloud. The Conversion Line and the Base Line add to the same reading: both lines above the cloud support an uptrend, and both lines below the cloud support a downtrend.
Support and Resistance Levels
The cloud acts as support in an uptrend and as resistance in a downtrend. Leading Span B tends to be the stronger level of the 2 cloud boundaries, because Leading Span B reacts more slowly to price changes.
Traders watch for a pullback to the cloud in an uptrend as a possible buying opportunity. In a downtrend, traders watch for a pullback up to the cloud as a possible selling opportunity.
Confirming the Trend With the Lagging Span
The Lagging Span confirms the trend by comparing the current close with price 26 periods ago. A Lagging Span above past prices confirms an uptrend, and a Lagging Span below past prices confirms a downtrend.
Traders also read past prices as support and resistance for the Lagging Span. A Lagging Span that runs into past prices can warn of a possible reversal, even when price is still above or below the cloud.
What Are the Main Ichimoku Signals?
The Ichimoku Cloud gives 4 main signals in each direction: 1) price crossing the cloud, 2) the cloud changing color, 3) price crossing the Base Line, and 4) the Conversion Line crossing the Base Line. Price crossing the cloud and the cloud changing color show the trend, and the 2 Base Line signals show momentum.
Bullish signals are stronger when price is above a green cloud, and bearish signals are stronger when price is below a red cloud. A signal against the existing trend is weaker, such as a bullish signal while price is below a red cloud.
The 4 Ichimoku signals in each direction on an illustrative EUR/USD daily chart. Each marker sits on the candle where the signal formed, and each cloud color change appears 26 periods ahead of that candle. Prices are simulated for teaching.
Conversion-Base Line Crossovers
A bullish signal forms when the Conversion Line crosses above the Base Line during an uptrend. A bearish signal forms when the Conversion Line crosses below the Base Line during a downtrend.
A bullish crossover is reinforced when the Conversion Line, the Base Line and price are all above the cloud. A bearish crossover is reinforced when the Conversion Line, the Base Line and price are all below the cloud.
Price-Base Line Crossovers
A bullish signal forms when price crosses above the Base Line during an uptrend. The move below the Base Line before that signal is a short-term pullback inside the bigger uptrend, and the pullback ends when price moves back above the Base Line.
A bearish signal forms when price crosses below the Base Line during a downtrend. A short-term pullback above the Base Line ends when price moves back below the Base Line.
| Pro Tip: A Conversion-Base Line crossover can be rare in a strong trend, so also watch for price crossing the Base Line to find more signals in the direction of that trend. |
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Ichimoku Cloud Breakouts and Color Changes
A bullish breakout forms when a candle closes above the cloud, and a bearish breakout forms when a candle closes below the cloud. A breakout through a thick cloud points to a stronger trend than a breakout through a thin cloud.
A breakout that falls back inside the cloud is a fakeout, also known as a fake breakout. Fakeouts are most common when price is in consolidation around a thin cloud.
The cloud turning from red to green is a bullish signal, and the cloud turning from green to red is a bearish signal. The color change appears at the right edge of the cloud, 26 periods ahead of the current candle, on the same candle that Leading Span A and Leading Span B cross.
Ichimoku Cloud Signal Summary
The table lists the 4 bullish signals and 4 bearish signals of the Ichimoku Cloud.
| Signal | Bullish | Bearish | Shows |
|---|---|---|---|
| Price and the cloud | Price moves above the cloud | Price moves below the cloud | Trend |
| Cloud color | Cloud turns from red to green | Cloud turns from green to red | Trend |
| Price and the Base Line | Price moves above the Base Line | Price moves below the Base Line | Momentum |
| Conversion Line and Base Line | Conversion Line moves above the Base Line | Conversion Line moves below the Base Line | Momentum |
Which Timeframes and Settings Work Best for the Ichimoku Cloud?
The Ichimoku Cloud is best suited to medium-term charts with the default settings of 9, 26 and 52. Shorter charts need more care, because intraday noise produces more fakeouts.
What Is the Best Timeframe for Ichimoku?
The daily chart and the 4-hour chart are widely considered the best timeframes for the Ichimoku Cloud. The daily chart cuts out intraday noise, and the 4-hour chart gives a balance between how often signals form and how reliable they are.
| Trading style | Timeframe | Settings | What to expect |
|---|---|---|---|
| Swing and position trading | Daily, 4-hour | 9, 26, 52 | Clear cloud boundaries and reliable trend confirmation |
| Day trading and scalping | 1-hour, 15-minute, 5-minute | Faster settings such as 5, 13, 26 | More noise and more fakeouts, so traders check the trend on a higher timeframe |
| Long-term trading | Daily, weekly | Extended settings such as 18, 52, 104 | Very few signals, aimed at large trends |
Views on day trading with the Ichimoku Cloud are mixed. The Ichimoku Cloud can work on lower timeframes, but it is not built to catch exact tops and bottoms.
Why Are the Default Ichimoku Settings 9, 26 and 52?
The default Ichimoku settings are commonly explained by the old six-day Japanese trading week, when markets also opened on Saturdays. Under that explanation, each setting matches a length of time on the calendar.
| Setting | Used for | Six-day week length |
|---|---|---|
| 9 | Conversion Line | One and a half weeks |
| 26 | Base Line and the 26-period shift | One month |
| 52 | Leading Span B | Two months |
Should You Change the Ichimoku Settings for Forex?
The Ichimoku settings can be adjusted, and the forex market trades 5 days a week, so some traders test 7, 22, 44 or 8, 22, 44 in place of 9, 26, 52. The 9, 26 and 52 settings remain the standard, and they are the default on most trading platforms.
A change to the Base Line period also changes how far the cloud is plotted ahead, because the Base Line number sets the forward shift. Test any new settings on a demo account first, because settings that suit one currency pair and timeframe may not suit another.
Ichimoku Cloud vs Moving Averages: What Is the Difference?
The Ichimoku Cloud and moving averages both help traders analyze trends, and the main difference is the calculation. Moving averages use closing prices, while the Ichimoku Cloud uses the midpoint of highs and lows and plots the cloud 26 periods ahead.
| Feature | Ichimoku Cloud | Moving averages |
|---|---|---|
| Price data | Highest high and lowest low, with the Lagging Span using the close | Closing prices |
| Lines on the chart | 5 lines and the cloud | Usually 1 to 3 lines |
| Plotted ahead of price | Yes, the cloud is plotted 26 periods ahead | No |
| Noise | Filters out more noise | Shows more noise |
| Ease of reading | Takes practice to interpret | Simpler and cleaner |
The Conversion Line and the Base Line behave much like a 9-period and a 26-period moving average, and 9 and 26 are the same periods used to calculate the MACD. Once the cloud identifies the trend, the Conversion Line and the Base Line give signals in a similar way to the MACD.
Traders can also pair the Ichimoku Cloud with a momentum oscillator such as the relative strength index (RSI). The cloud identifies the trend, and the RSI shows overbought or oversold levels.
What Are the Limitations of the Ichimoku Cloud?
The Ichimoku Cloud has 9 main limitations, and news spikes, thick clouds and Lagging Span hindsight are the easiest to miss on a live chart. The table shows what happens on the chart and what to do about each limitation.
| Limitation | What happens on the chart | What to do |
|---|---|---|
| Unreliable during consolidation | Price moves in and out of the cloud, which produces fakeouts and frequent crossovers | Wait for a candle to close outside the cloud |
| Lag | All 5 lines use past prices, so signals form after a trend has started | Expect a later entry than the exact top or bottom |
| Chart clutter | 5 lines and a shaded cloud overlap on the chart | Hide the lines you are not using |
| Steep learning curve | Beginners can misread signals when several lines cross at once | Practice on a demo account |
| Default settings may not suit all markets | The 9, 26 and 52 settings can give weaker results on some instruments and timeframes | Test any change on a demo account first |
| Not a scalping tool | The Ichimoku Cloud is built for medium and higher timeframes | Check the trend on a higher timeframe before using a short chart |
| News spikes distort the lines | One spike can set the highest high or lowest low, which holds a line flat for exactly 9, 26 or 52 periods. The line then jumps when the spike leaves the calculation, while a moving average fades the spike gradually | Check for an old spike when a line sits flat and then jumps |
| Thick cloud and stop-loss distance | A safer stop-loss on the far side of a thick cloud sits far from the entry | Reduce the position size to keep the same risk on the trade |
| Lagging Span hindsight | On a past candle, the Lagging Span shows a close that had not happened yet, so old signals look better than they were | Ignore the Lagging Span to the right of the candle you are reviewing |
How Do You Add the Ichimoku Indicator to MT4 and MT5?
The Ichimoku indicator comes built in on MT4 and MT5, so there is nothing to install. To add the Ichimoku indicator, follow 4 steps: 1) open a chart, 2) click Insert, then Indicators, then Trend, 3) select Ichimoku Kinko Hyo, and 4) keep the default settings and click OK.
The MT4 and MT5 settings window uses the Japanese names, so Tenkan-sen is the Conversion Line, Kijun-sen is the Base Line, and Senkou Span B is Leading Span B. The Colors tab labels the 2 cloud colors as Up Kumo and Down Kumo, so set Up Kumo to green and Down Kumo to red to match the charts in this article.
On MT5, the cloud appears as hatched lines by default. Setting the line width of Up Kumo and Down Kumo to the last option on the Colors tab fills the cloud with solid color.
TMGM is ASIC-regulated and offers MT4, MT5 and the TMGM App, with a free demo account for practicing Ichimoku trading before using real money. CFD trading involves significant risk and is not suitable for all investors. You could lose more than your initial deposit.
The Bottom Line on the Ichimoku Cloud
The Ichimoku Cloud is an all-in-one, trend-following indicator that shows trend direction, momentum, and support and resistance levels in one view. Traders first use the cloud to identify the trend, then use the Conversion Line, the Base Line and price to find signals in the direction of that trend.
The Ichimoku Cloud works best in trending markets on the daily chart and the 4-hour chart, and it is unreliable during consolidation. The cloud ahead of the current candle is built from past prices, so treat the forward cloud as a level to watch and protect each trade with a stop-loss.
Ichimoku Cloud FAQs
Is Ichimoku a Good Indicator?
Ichimoku is a good indicator for traders who want trend, momentum, and support and resistance levels in one all-in-one tool, and it works well in trending markets. Ichimoku is weaker during consolidation, where it produces more fakeouts, and the 5 overlapping lines can look crowded to beginners.
What Is the Success Rate of Ichimoku?
Backtests commonly show an Ichimoku success rate of 50% to 60% in trending markets and around 39% in weak or consolidating markets. The figures change with the entry rules, timeframe, market and risk management, so no single win rate applies to every trader.
A win rate near 50% does not mean a trader loses money, because a risk-reward ratio of 1.5-to-1 or higher makes the average win larger than the average loss. Past backtest results do not guarantee future results.
Is the Ichimoku Cloud a Leading Indicator?
The Ichimoku Cloud has both leading and lagging parts, so it is a hybrid indicator. The cloud is the leading part, because Leading Span A and Leading Span B are plotted 26 periods ahead, and the Lagging Span looks 26 periods back.
The Conversion Line and the Base Line track current prices using past highs and lows. All 5 lines use past data, so the Ichimoku Cloud remains a trend-following indicator with no ability to predict where price will go next
