The Ichimoku cloud is a highly valuable technical indicator because it looks at the past, the present and the future. It is also free and available on a wide variety of trading platforms. If youre not familiar with the Ichimoku cloud, here are the basics:
The term Ichimoku means at first glance. At first glance, is a stock bearish, bullish or neutral? Where is a good entry, and where is a good exit? Lets take a look at the components that make up the Ichimoku cloud:
First, lets look at the tenken-sen (red) line. This line shows the short-term trend and it is calculated as follows:
Tenken-sen line = the highest high + the lowest low over the last 9 periods divided by 2.
This formula has a Fibonacci retracement built into its calculation. Its an effective indicator because it works better than simple moving averages.
The Kinjun-sen line (green) shows the longer-term trend. The calculations for this line is:
Kinjun-sen line= the highest high + the lowest low over the last 26 periods divided by 2.
So the tenken-sen and kinjun-sen lines show the short-term and longer-term trends in a market at the present time.