The Ichimoku cloud was developed by Goichi Hosada. It was developed principally to trade stocks on the Japanese stock exchange, but is now used in other markets such as the forex and commodity markets. The Ichimoku cloud is a chart that is used to spot trends and reversals in advance so as to enable the trader take positions early.
The chart is made up of the following components:
- Cloud or “Kumo” which is a representation of support and resistance based on price action.
- Tenkan line (Tenkan-sen, shown in red): This is the conversion line, and the angulation of this line indicates how strong or weak a trend is. A sharper angulation shows a strong trend, an almost flat line shows a weak trend.
- Kijun line (Kijun-sen, shown in blue): This is the line that shows the trend of the asset.
- Chinkou span
(Chart showing Ichimoku Kinko Hyo in action)