Ichimoku Cloud indicator: settings and signals

Ichimoku is an integral system of five lines that simultaneously shows the trend, support and resistance levels, and equilibrium points.

What the indicator looks like on a real chart

What the indicator actually measures

Goichi Hosoda developed the system to be self-sufficient: it is designed so that a single glance at the chart is enough to assess the state of the market without additional indicators. Hence five components instead of a single line.

All the lines except Chikou are built the same way — as the midpoint of the range over their period: Tenkan over 9 bars, Kijun over 26, Senkou B over 52. These are not moving averages: the midpoint of a range reacts to the extremes, not to closing prices, so the Ichimoku lines often run along horizontal shelves where moving averages bend smoothly.

A unique feature of the system is the shift in time. The cloud is built from values computed 26 bars ago and projected forward, so there are already levels to the right of the current price on the chart. Chikou, on the contrary, is shifted back and compares the current close with a past price. No other indicator in the set works with a time shift.

Formula

The key difference from moving averages: the lines are computed as the half-sum of the high and low over a period, not as an average of closes. The periods 9, 26 and 52 reflect the structure of the mid-20th-century Japanese trading week, when Saturday was a working day.

Standard settings

It is not customary to change the classic 9/26/52: the system was designed as a single whole with carefully tuned proportions between the periods. Adaptations for 24-hour markets (for example 10/30/60) exist, but they break the original logic and require their own validation.

Implementation code (Python)

def ichimoku(high, low, conv=9, base=26, span_b=52):
    tenkan = (high.rolling(conv).max() + low.rolling(conv).min()) / 2
    kijun = (high.rolling(base).max() + low.rolling(base).min()) / 2
    span_a = ((tenkan + kijun) / 2).shift(base)
    span_b_line = ((high.rolling(span_b).max() + low.rolling(span_b).min()) / 2).shift(base)
    return tenkan, kijun, span_a, span_b_line

When the indicator stops working

Common mistakes in use

• Using one or two lines in isolation from the system. Ichimoku is conceived as an integral whole, and a Tenkan/Kijun crossover taken separately, without regard to the cloud and Chikou, loses most of its meaning.
• Forgetting about the forward shift of the cloud and comparing price with the part of the cloud that belongs to a different moment in time.
• Optimizing the periods against history, destroying the proportions between components that the author built in.
• Trading inside the cloud. The cloud area is a zone of uncertainty where the system deliberately gives no signals.

Who needs this and why

For medium-term traders on daily bars who are willing to spend time mastering an integral system. Not suited to scalping or to those who want one simple signal.

Frequently asked questions

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