Indicator
Ichimoku Cloud
Ichimoku Kinko Hyo is a system of five lines derived from midpoints of past high-low ranges. Two of them are plotted forward in time, forming the shaded area known as the cloud.
How it is calculated
How to read it
- Every line is a midpoint of past highs and lows — none uses closing averages, which is what distinguishes it from moving-average systems.
- The cloud appears ahead of price because two lines are shifted forward. This is a plotting offset of already-computed values, not a projection of anything unknown.
- Cloud thickness reflects the gap between the two spans, which widens when the recent ranges they are built from differ substantially.
What it does not tell you
- The forward-plotted cloud is regularly misdescribed as predicting future prices. It is past data drawn to the right of the current bar and contains no information about bars that have not printed.
- Five lines plus a shaded region produce many possible interpretations, and readings can be constructed to justify almost any view after the fact.
- The 9, 26 and 52 defaults derive from a six-day trading week in mid-20th-century Japan and have no particular relevance to current market structure.
Common settings
9, 26 and 52 are the original parameters. Some traders adjust them for a five-day week, though the conventional values remain in widest use.
Frequently asked questions
What does the Ichimoku cloud show?
The area between two lines computed from midpoints of past high-low ranges, plotted 26 periods ahead of the current bar. It summarises past ranges; it does not forecast.
Does Ichimoku predict future prices?
No. The cloud is drawn ahead of price because already-calculated values are shifted forward on the chart. Nothing in the calculation uses information about bars that have not occurred.
Why are 9, 26 and 52 the standard settings?
They reflect a six-day trading week in Japan when the system was developed — roughly a week and a half, a month, and two months. They persist by convention.
Is Ichimoku a lagging indicator?
Yes. Every component is derived from past highs and lows. The forward plotting changes where values appear on the chart, not what they are computed from.
Related
- Lagging vs Leading Indicators — Concept
- Trend Structure: Higher Highs and Lower Lows — Concept
- Simple Moving Average (SMA) — Indicator
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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