What is Ichimoku?
Ichimoku is a complete Japanese analysis system that, unlike most indicators that show only one aspect of the market, simultaneously displays trend, support and resistance, momentum, and even probable future zones in a single view. Its visual signature is the colored zone known as the “cloud” or Kumo, made up of two lines, Senkou Span A and B.
How it's calculated
Ichimoku consists of five lines: the Tenkan-sen (the average of the highest and lowest price over the most recent 9 periods), the Kijun-sen (the same calculation over 26 periods), the two Senkou Span lines that form the cloud and are plotted several periods ahead, and the Chikou Span, which shifts the current price several periods back to compare it with past prices.
How to read the chart
Price sitting above the cloud is considered a bullish trend, and below the cloud a bearish trend; price crossing through inside the cloud often signals instability or a possible change in trend. The cloud's thickness also matters; a thicker cloud acts as stronger support or resistance and is harder to break through.
Trading signals
A crossover between the Tenkan-sen and Kijun-sen lines works similarly to a crossover between two moving averages and signals a short-term momentum shift. Price exiting the cloud and holding above or below it is also considered one of this system's most reliable trend-change signals, especially when it aligns with the cloud's color, which shows the medium-term trend direction.
Strengths and limitations
By presenting several layers of information at once, Ichimoku offers a comprehensive view of the market; but that same volume of information can look cluttered and confusing to beginner traders and requires more practice and familiarity than simpler indicators.
Practical tip
To start, focus on just two core concepts: price's position relative to the cloud (trend) and the Tenkan/Kijun crossover (momentum); once you've mastered these two, you can gradually bring the Chikou Span and other details into your analysis.