Main Components of Ichimoku Kinko Clouds,
IMPORTANT : Ichimoku Kinko Cloud only work in trending market
1) moving averages
– Tenkan-sen (“Conversion Line”): is a nine-day moving average. Tenkan Sen is an indicator of the market trend, trending or ranging.
– Kijun-sen (“Base Line”): is a twenty six-day moving average. Kijun Sen acts as an indicator of future price movement.
Look for crosses between these two moving averages on top or below the cloud. Don’t trade when they are trading and crossing inside the cloud.
***Note, i left out Chikou Span (lagging line, Today’s closing price plotted 26 periods behind.) on today chart.
2) Clouds – Senkou Span A/Leading Span A and Senkou Span B/Leading Span B
I am only concern on the crossover, thickness, location of the clouds for today.
Some complimentary indicators,
3) Average Directional Index (ADX)
– strong trend is present when ADX is above 25
– weak or no trend is present when below 20 (which indicates a prevailing sideways market)
4) 200-day moving average
This may not be as important, just another added indicator to deteremine the longer trend.
Ichimoku Cloud Setup,
Finding the Trend
– The trend is upward when price is above the Cloud.
– The trend is downward when price is below the Cloud.
– The trend is flat (undetermined) when price is in the Cloud.
The Cloud is green when Senkou Span A is above Span B. A predominantly green cloud indicates a strong up-trend (or weak down-trend), while a predominantly red cloud indicates a strong down-trend (or weak up-trend).
Trading Setup in the Bullish Trend
– Go long when Tenkan-Sen (blue) crosses above Kijun-Sen (red).
– Go long when Price crosses above the Kijun-Sen (red) line.
– Exit when Price crosses below Kijun-Sen (red).
– Exit when Tenkan-Sen (blue) crosses below Kijun-Sen (red).
Signals above the Cloud where the latest Cloud color (ahead) is green are stronger than where the color is red.
Trading Setup in the Bearish Trend
– Go short when Tenkan-Sen (blue) crosses below Kijun-Sen (red).
– Go short when Price crosses below the Kijun-Sen (red) line.
– Exit when Price crosses above Kijun-Sen (red).
– Exit when Tenkan-Sen (blue) crosses above Kijun-Sen (red).
Signals below the Cloud where the latest Cloud color (ahead) is red are stronger than where the color is green.