Five lines and a shaded cloud that together describe support, resistance, trend direction, momentum, and explicit entry signals — all on a single chart. Easily the most information-dense indicator in technical analysis, and the one that punishes incomplete understanding most severely.
Ichimoku Cloud on MES daily — price transitioning through the cloud
What it measures
- Trend direction. Price above the cloud = bullish. Below = bearish. Inside = transitional/no trend.
- Support and resistance. The cloud itself acts as dynamic support (in uptrends) or resistance (in downtrends), with thickness indicating strength.
- Momentum. Tenkan-sen / Kijun-sen relationship and Chikou span position give momentum readings.
- Future projection. The cloud is plotted 26 bars into the future, giving anticipated support/resistance zones.
Formula
How AlgoLift computes it
Tenkan-sen (Conversion Line): (highest high + lowest low) / 2 over tenkan_period (default 9).
Kijun-sen (Base Line): (highest high + lowest low) / 2 over kijun_period (default 26).
Chikou Span (Lagging Span): Current close, plotted kijun_period bars backward.
Senkou Span A (Leading Span A): (Tenkan + Kijun) / 2, plotted kijun_period bars forward.
Senkou Span B (Leading Span B): (highest high + lowest low) / 2 over senkou_b_period (default 52), plotted kijun_period bars forward.
Cloud: The shaded region between Senkou A and Senkou B. When A > B, the cloud is bullish (green); when A < B, bearish (red).
Developed by Goichi Hosoda over 30 years and published in 1969. Despite its complexity, every component is built from simple (highest_high + lowest_low) / 2 calculations — a midpoint formula applied across different lookbacks and time shifts.
Inputs in AlgoLift
| Setting | Default | Range | Notes |
|---|---|---|---|
| Tenkan Period | 9 | 1–200 | Lookback for the fast conversion line. |
| Kijun Period | 26 | 1–200 | Lookback for the slow base line, the Chikou shift, and the cloud's forward shift. |
| Senkou B Period | 52 | 1–200 | Lookback for Leading Span B, the slower edge of the cloud. |
Recommended settings
- (9, 26, 52) — default: Hosoda's original. Designed for Japanese stock daily charts; works well on most daily setups.
- (7, 22, 44): Faster — preserves the 1:3:6 ratio that's structurally important.
- (20, 60, 120): Slower — for weekly/macro analysis.
The three periods should maintain roughly 1:3:6 ratio. Diverging from that proportion breaks the indicator's internal coherence.
Outputs in AlgoLift
AlgoLift exposes 11 outputs — the most of any indicator. Eight are visual lines/cloud edges; three are derived strategy-logic outputs.
Visual outputs
| Handle | Plotted | Notes |
|---|---|---|
| Tenkan-sen | Always | Fast moving line. |
| Kijun-sen | Always | Slow moving line. Acts as dynamic support/resistance. |
| Chikou Span | Always | Current close plotted 26 bars in the past. |
| Senkou A (Bull) | Always | Top of green cloud (when A > B). |
| Senkou B (Bull) | Always | Bottom of green cloud. |
| Senkou A (Bear) | Always | Bottom of red cloud (when A < B). |
| Senkou B (Bear) | Always | Top of red cloud. |
Strategy-logic outputs
| Handle | Type | Notes |
|---|---|---|
| Price vs Cloud | Numeric | 1 if price > cloud, −1 if below, 0 if inside. |
| Cloud Direction | Numeric | 1 if Senkou A > B (bullish cloud), −1 otherwise. |
| TK Cross State | Numeric | 1 if Tenkan > Kijun, −1 otherwise. |
| Chikou vs Price | Numeric | 1 if Chikou > price 26 bars ago, −1 otherwise. |
Ichimoku Cloud node — default state with all 11 outputs
Reading the components together
The five lines work as a checklist:
- Price vs Cloud: Above = bullish bias, below = bearish, inside = no-trade zone.
- Cloud color (Senkou A vs B): Bullish cloud = trend supports longs; bearish cloud = trend supports shorts.
- Tenkan/Kijun cross: TK cross gives the momentum signal. When aligned with cloud direction, it's a high-quality entry.
- Chikou vs past price: Chikou above past price 26 bars ago = confirms current bullishness. Below = confirms bearishness.
A "perfect" Ichimoku long signal requires all four: price > cloud, bullish cloud, TK bullish cross, Chikou > past price. Strategies that wait for all four are rare-but-high-conviction; strategies that wait for 2-3 of them are more practical.
Ichimoku is a checklist, not a single signal. The four strategy-logic outputs (Price vs Cloud, Cloud Direction, TK Cross State, Chikou vs Price) exist specifically so you can wire them into AND/OR logic to build precise conviction-based entries.
Best in / worst in
Best in trending markets on daily and higher timeframes — the system was designed for these conditions. Works particularly well on equity indices (NQ, ES, RTY) and on currency futures with clear directional regimes.
Worst in range-bound markets where price oscillates inside the cloud (Ichimoku effectively says "no trade" continuously), on very-short timeframes where the lookbacks become noise, and on instruments with frequent gaps that distort the high/low calculations.
Three setups
1. The classic four-signal long
The textbook Ichimoku entry — all four conditions agree.
- Long: Price > Cloud AND Cloud Direction = 1 (bullish) AND TK Cross State = 1 (Tenkan > Kijun) AND Chikou vs Price = 1.
- Short: All four conditions inverted.
Fires rarely (maybe 6–12 times per year on liquid daily charts) but each signal is high-conviction.
Four-signal Ichimoku long entry
2. The Kumo (cloud) breakout
Trade the moment price breaks through the cloud.
- Long: Price crosses from below to above the cloud AND Cloud Direction = 1 (bullish cloud — confirms the breakout is supported).
- Short: Inverse.
The cloud direction filter is essential — a breakout into a bearish cloud often reverses.
3. Tenkan/Kijun cross with cloud filter
A faster entry — TK crossover gated only by cloud position.
- Long: Tenkan crosses above Kijun AND price > Cloud.
- Short: Tenkan crosses below Kijun AND price < Cloud.
Less restrictive than the four-signal setup. Higher signal count, lower per-signal conviction.
Advanced patterns in AlgoLift
Cloud thickness as a trade-strength filter. Compute the cloud's thickness (|Senkou A − Senkou B|) via a math node and use it as an additional condition. Thick cloud + breakout = high-quality entry. Thin cloud = the breakout has little support and may reverse. See strategy correlation for related thickness-based patterns.
Kijun-sen as a trailing exit. Exit long positions when price closes below Kijun-sen; exit shorts when price closes above. The Kijun acts as a dynamic stop that adapts to volatility and price level — cleaner than fixed-distance stops.
Ichimoku for regime classification. Use Cloud Direction as a portfolio-level regime flag. When daily Ichimoku Cloud is bullish, trend-following strategies should be active; when bearish, defensive or mean-reversion. Single check, big effect.
Multi-timeframe Ichimoku stack. Add a daily data series alongside your 1h execution chart. Only allow 1h entries when the daily Ichimoku and the 1h Ichimoku agree on cloud position. The cross-timeframe confluence dramatically reduces signal count but produces some of the cleanest entries available.
Common mistakes
- Trading every TK crossover as a signal. Without the cloud filter, TK crossovers fire constantly and many fail. Ichimoku's full power requires the multi-component agreement.
- Ignoring the Chikou. New users often skip the lagging span because it visually overlaps with price. The Chikou vs past price comparison is one of the highest-quality individual Ichimoku signals.
- Forcing trades inside the cloud. The cloud is a "no trade" zone in the system's design. Entries inside the cloud go against the framework.
- Tuning the three periods independently. The 9/26/52 ratio is structural. Changing the ratio (e.g., to 9/22/40) breaks the internal coherence of the system.
- Using on very-short timeframes. Ichimoku on 1-minute bars produces noise rather than signal. Daily and higher is where the system was designed to work.