entertheroach

The Ichimoku Cloud (Ichimoku Kinko Hyo) - WTF is it

Education
BINANCE:ADAUSD   Cardano / US Dollar (calculated by TradingView)
So, the Ichimoku Cloud ( Ichimoku Kinko Hyo) - WTF is it??? At first the Ichimoku Cloud can look a bit daunting, but after reading this, hopefully it will put you at ease & you will realise that it is a really neat and powerful indicator that shows you Momentum, Trend, Support and Resistance . Note that you can use the Ichimoku Cloud for all timeframes, but it may not work on monthly or yearly charts if there is not enough previous data.

The Ichimoku Cloud ( Ichimoku Kinko Hyo) is made up of 5 indicators, The Conversion Line (Tenkan Sen), The Base Line (Kijun Sen), Leading Span A (Senkou Span A), Leading Span B (Senkou Span B) and the Lagging Span (Chikou Span).

On TradingView the default settings for the Ichimoku Cloud are:

Conversion Line Periods = 9
The Base Line Line Periods = 26
Lagging Span 2 Periods = 52: Is actually the Leading Span B
Displacement = 26: Is actually the Lagging Span

For the Crypto market, these default settings are no good and we need to adjust the settings because Crypto is 24hrs a day, 7days a week, 365 days a year. Crypto never closes “unless an exchange or broker gets worried” 😜.

Using the TradingView’s system, the Crypto settings need to be changed to:

Conversion Line Periods = 20
The Base Line Line Periods = 60
Lagging Span 2 Periods = 120: Is actually the Leading Span B
Displacement = 30: Is actually the Lagging Span

Some people have posted online saying the displacement should be 60 for Crypto, but that is incorrect. 60 gives too much distance from the Cloud (Kumo) and you cannot get accurate readings for Resistance and Support, so 30 is perfect for Crypto needs.

Using the Crypto Settings, The Conversion Line (Tenkan Sen) is a Midpoint of the previous 20 Period Highs and 20 Period Lows. The Base Line (Kijun Sen) is a Midpoint of the previous 60 Period Highs and 60 Period Lows. So they are not SMAs or EMAs. What is neat is that if you change timeframes then you will get the 20 & 60 Period Midpoints for whatever timeframe you are in, so it is a very useful tool to see if there is a possible cascade effect happening on lower timeframes that may cascade on to higher timeframes. If the Conversion Line (Tenkan Sen) crosses under the Base Line (Kijun Sen), that is a Sell Signal or varying strength depending on where it crosses in relation to the rest of the Ichimoku Cloud Indicator. If the Base Line (Kijun Sen) crosses back under the Conversion Line (Tenkan Sen), then that is considered a buy signal of varying strength depending on where it crosses in relation to the rest of the Ichimoku Cloud Indicator. The Conversion Line (Tenkan Sen) & The Base Line (Kijun Sen) can act as potential Support and Resistance depending on if the current price is above or below either of the indicator lines.

Leading Span A ( Senkou Span A) is a Leading momentum indicator and is already calculated from the Conversion and Base Line values, hence why you only need to add a value for Leading Span B (Senkou Span B) which is 120. The Leading Span B (Senkou Span B) uses double the periods so it will react slower compared to Leading Span A (Senkou Span A). The gap between Leading Span A (Senkou Span A) & Leading Span B (Senkou Span B) is the Cloud (Kumo). If the Cloud (Kumo) is green, that indicates we are in a Bullish Trend for that timeframe. If the Cloud (Kumo) is red, that indicates we are in a Bearish Trend for that timeframe. The area above the cloud is the Bullish Zone & the area below the cloud is the Bearish Zone. Inside the cloud is the Equilibrium Zone, which can be seen as trend-less, uncertainty or trading sideways. A key move to look out for is if the Leading Spans A,B are Crossing/Twisting from either a green cloud into a red cloud or vice versa to indicate a trend reversal. Note the Cloud (Kumo) can be Red or Green while the price action is in the Equilibrium Zone depending on if it dipped down or up into the Cloud (Kumo). Note that because we dip downwards outside of the Cloud (Kumo) that doesn’t mean the Cloud will turn red because we may rebound before the Leading Span A (Senkou Span A) gets a chance to cross Leading Span B (Senkou Span B) and vice versa. If the Cloud (Kumo) is thin then this is a good sign of momentum, when the Cloud (Kumo) starts getting wider, that means momentum is slowing down. The Leading Span A (Senkou Span A) & the Leading Span B (Senkou Span B) can act as potential Support and Resistance depending on if the Price is above or below the Cloud (Kumo), or in the Equilibrium Zone. Note that the Leading Span A (Senkou Span A) & Leading Span B (Senkou Span B) are plotted 30 Periods ahead of the current price.

The Lagging Span (Chikou Span) is a momentum and a 2nd confirmation indicator that enables you to see potential trend changes. Using the Crypto settings, the Lagging Span (Chikou Span) is calculated by shifting the indicator 30 periods behind the last closing price. If the Lagging Span (Chikou Span) indicator is above where the price was at 30 periods ago then that is considered an uptrend for the timeframe you are in. If the Lagging Span (Chikou Span) indicator is below where the price was at 30 periods ago then that is considered a downtrend for the timeframe you are in. A Bullish and Bearish confirmation signal can be seen if the Lagging Span (Chikou Span) indicator crosses up or under that previous 30 period price respectively, but also using the other indicators as conformation. If the Lagging Span (Chikou Span) is inside the previous Price from 30 Periods ago, then that is considered sideways trading, choppy or trend-less.

The Ichimoku Cloud ( Ichimoku Kinko Hyo) is designed to be used as a whole and each of the indicators complement one another. It’s best practice to use it with other indicators like, Volume , RSI , VPVR, MACD , ADX or the SMI. This is my first educational post on TradingView, so i'd thought id keep it brief. I’ll update and go into the different confirmation buy/sell levels, and more on each of the indicators at a later date. I hope you have found this educational post helpful 🙏

In fact, reading this thing back, its not really that brief is it 😅👍
Comment: I think the confusion with the displacement setting is because the settings shift the The Lagging Span (Chikou Span) 30 Periods to the left & also shifts the Leading Span A (Senkou Span A) & Leading Span B (Senkou Span B) 30 periods to the right, so some people probably think they need to type in 60 but they don't because 30 affects both indicators. The Crypto numbers i've provided are a good default starting point for the Conversion Line (Tenkan Sen) & Base Line (Kijun Sen), but you can fine tune the periods to your needs to make them more or less reactive in the timeframes your trading in to produce the crossover signal sooner or later like having the Conversion Line (Tenkan Sen) at something crazy like 5 & Base Line (Kijun Sen) at 15 on the 1hr chart, but by doing this you do have to be very careful of false signals. 👍
Comment:
Here is a recent example to show some of the different stages. Please note again that the Conversion Line (Tenkan Sen) & Base Line (Kijun Sen) are not SMAs or EMAs they are X amount high/low period midpoints, so they shouldnt be used as SMA or EMAs. You should be using the Ichimoku Cloud with other indicators of your choosing. I hope this is helpful.
Comment: A few people are saying the cross is too late of a signal. I'll clarify a bit more, maybe i wasn't clear enough because i was going a bit stir crazy typing this post 😅. So i'm adding this to show how these confirmation signals will give you signals and how they can benefit you, even though they give signals at different times by using the Crypto settings. The Conversion Line (Tenkan Sen) & Base Line (Kijun Sen) cross in either direction is a major confirmation for buyers/sellers respectively. But, if you look at the above screen shot, you can see that on the 10th, the price dropped below the Conversion Line (Tenkan Sen) 30 period indicator. So that is our 1st Confirmation signal. You could have put a short there because there is a quite a bit of distance before we get to the next Support. The Price rebounded off Leading Span A (Senkou Span A), it went back up, but it couldn't break back out of the Conversion Line (Tenkan Sen), so if you didn't short the first time, you could've shorted this time because the Conversion Line (Tenkan Sen) has now become strong resistance. So the price dropped more and crashed through both the Base Line (Kijun Sen) 60 Period indicator & the Leading Span A (Senkou Span A) which is our 2nd Confirmation signal. The Lagging Span (Chikou Span) being under the price action & under the Leading Span A (Senkou Span A) is our 3rd & 4th Confirmation signals. The Conversion Line (Tenkan Sen) crossing back under Base Line (Kijun Sen) is our 5th Confirmation signal. The Price then breaking downwards through the Leading Span B (Senkou Span B) on the 11th is our 6th Confirmation signal. The Cloud (Kuno) twist is our 7th Confirmation signal that the overall trend for that timeframe is changed. You also need to make sure that you use other indicators like Volume, Bollinger Bands, RSI, ADX ect in conjunction with the Ichimoku Cloud. Hopefully this shows that the Conversion Line (Tenkan Sen) & Base Line (Kijun Sen) are not SMAs or EMAs and shouldn't be treated as if they are, they are X Amount Period Midpoints, not SMAs or EMAs. If you looking for a Golden Cross, you're better off using the 50EMA & 200EA . I hope this is helpful.

FYI, apologies for the multiple spelling mistakes 'conformation' in the previous text should be 'confirmation' 😅
Comment: A few people have been mortified that i have changed the original default settings. I do not want to cause an offence or make people angry. I am just showing what has worked for me in the crypto space. It's up to you to research and find the methods that best suit you. The Ichimoku Cloud creator the great Hosda Goichi, developed a series of numbers that coincided with previous Japanese stock trend reversals, those numbers are 9, 17, 26, 33, 42, 65, 76, 129, 172, 257 which he noted had given trend reversals in the past. In Hosda San's time, Japan had 6 Trading Days a week, 1 month had 26 trading days so 2 months was 52 trading days. The number 9 & 26 was from his numerical system, 9 represents 1 trading week & 1/2 added together, 26 is part of his number system and 52 is made by doubling 26. It is debatable whether or not the working days mean anything for this system, but for me, they do, because those days were what he was building the system around at the time & it's too much of a coincidence that his numbers 26 & 52 match up perfectly with the old Japanese trading days. Ultimately i'm not telling you what to do, i am just sharing my little bit of knowledge that has worked for me in the crypto, you have to do you own research to find what works best for you. Please see the 2 attached comparisons stills showing what readings you get, using the original default setting and the crypto settings. I hope this is helpful.


Comment: I thought i'd elaborate a bit more for you on the Lagging Span (Chikou Span) as i may not have been very clear with it the first time around. Please note that for this, i'm using the crypto settings, but its just a change in value so the concept is the same for the original default settings which still work great for traditional markets. The Lagging Span (Chikou Span) is the secret weapon of the Ichimoku Cloud (Ichimoku Kinko Hyo) System & is a great 2nd trend confirmation indicator. It is also not as difficult as it first looks.

When the Tip is above the Cloud (Kumo)
1. If the Tip of the The Lagging Span (Chikou Span) is above the Cloud (Kumo) & above the Price from 30 Periods ago, then that is a show of strength that the uptrend may continue.
2. If the Tip of the The Lagging Span (Chikou Span) is above the Cloud (Kumo) but inside the Price from 30 Periods ago, then that is showing we have possible sideways trading or uncertainty.
3. If the Tip of the The Lagging Span (Chikou Span) is above the Cloud (Kumo) but below the Price from 30 Periods ago, then that is a showing a lack of strength & a possible move to the downtrend & it may try to head down into the Equilibrium Zone & back under the Cloud (Kumo).

When the Tip is below the Cloud (Kumo)
1. If the Tip of the Lagging Span (Chikou Span) is below the Cloud (Kumo) and below the price from 30 Periods ago, then that is confirmation of a possible continued Bearish Trend.
2. If the Tip of the The Lagging Span (Chikou Span) is below the Cloud (Kumo) but inside the Price from 30 Periods ago, then that is showing we have possible sideways trading or uncertainty.
3. If the Tip of the The Lagging Span (Chikou Span) is below the Cloud (Kumo) but above the Price from 30 Periods ago, then that is showing a possible sign of buyer strength & it may move back to the uptrend & it may try to make it back over the Cloud (Kumo) into the Equilibrium Zone & then the Bullish Zone.

The above concepts can also be applied for when the Lagging Span (Chikou Span) Tip is in the Equilibrium Zone, and there are other aspects to it for you to research, such as which direction the The Lagging Span (Chikou Span) Tip is pointing in & where it is in relation to the other indicators of the Ichimoku Cloud (Ichimoku Kinko Hyo) System.

This is my first educational post on TradingView and it has turned into mammoth post, hopefully you have all found it somewhat helpful & hopefully i've encouraged you to do your own research & studies to find what's best for your trading needs.

Cheers 👍

Comments

Thanks for creating this awesome guide! We hope it helps others get started with Ichimoku. Also, thanks for letting us know our default settings for Ichimoku on crypto should be changed 😜

P.S.

To everyone reading, make sure you take full control of your indicator settings! Adjust the indicator settings to fit your needs, time frame, risk-reward, and even the indicator colors.
200coins
+18 Reply
entertheroach TradingView
@TradingView, Cheers 👍
+1 Reply
Have been reading on Ichimoku for only a month or so.
You hit spot on. Clean, high school English, succinct.
Thank you much to confirm some concepts, and alleviate some vernacular of "Huh?" I have from article to article sources consumed.
I thought it was AYE who hit my head, or needed glasses that cloud was fine, and I was not able to perceive signals.
Now of course, I will be gone for 18 hours applying it to BTC all the way down to NANO to get some patterns.
DAMN :-)
Cheers
+6 Reply
Since there are 4 variables to set, it seems that it is quite difficult to test and set up these variables for different market. Is there a way to make it more easier?
+5 Reply
@dcyinv, The default settings are still good for traditional Stocks, Shares, Commodities and Indices ect. The alternate Crypto settings are only for Crypto. They will lead to false signals if used on a market that isn't open 24/7 365 days a year. 👍
+3 Reply
dcyinv entertheroach
@entertheroach, Thanks very much.
+1 Reply
raoultesla entertheroach
@entertheroach,
Sometimes this place is amazing.
Ahh guy, (you), knew an important variable to this indicator for sound interpretation as hard data in considering analysis for a specific genre of asset.
And you SHARED your information!? From experience!? Without bragging, or linking a pay site!?
I can't even.
If you did not inform us, or at least myself, how would I ever have researched the proper setting?
In a money world people are treating each other with respect?
Damn man, pure class.
Good show that.
+11 Reply
great explanation. Thanks
+5 Reply
@jarizanj, My pleasure. Cheers
Reply
ignore everything you have ever been taught or researched about Ichimoku, and change the settings to these.
CP = 2000
BP = 84
LS = 10
displacement = 2
+2 Reply
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