The Ichimoku Cloud (Ichimoku Kinko Hyo) — WTF is it
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 😅👍
Jan 13
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. 👍
16 hours ago
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.
10 hours ago
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’ 😅
