Visually, the Ichimoku trading indicator is impressive and at the same time overwhelming. As the name suggests, it is an indicator formulated by a Japanese – a journalist! Goichi Hosoda developed the indicator in the 1960s and it comprises five lines plotted on the candlestick price chart, forming clouds as well.
Sample of the Ichimoku indicator on RHB TradeSmart.
The Ichimoku indicator appears in different colour codes on various machines but on the RHB TradeSmart advanced charting tool, the coloured lines are:
How to read the trading signals
The first signal: The Cloud
Depending on how the Leading Span A and Leading Span B cross one another, the cloud colour is determined.
Purple cloud: Leading Span A is above leading span B (indicating uptrend)
Blue cloud: Leading Span B is above leading span A (indicating downtrend)
Analyse the Cloud:
The trend is up when the price chart is above the cloud, down when the price chart is below the cloud, and flattish when prices are in the cloud. An uptrend is further strengthened when a purple cloud is produced by Leading span A (blue line) rising above Leading span B (purple line).
Trading in an uptrend
Price candle above the cloud, red line crosses above turquoise line
Example of uptrend: price candles above the purple cloud (leading)
Trading in a downtrend
Example of downtrend: price candles below the blue cloud
Leading Span A (blue line) is below the leading Span B (purple line) producing a blue cloud.
Sell: Below the cloud, red line crosses below turquoise line
Flat, lack of trend: price candles inside the cloud.
There is no clear identification of a trend of any sort in the following chart.
Before making a buy/sell call, it would be advisable to confirm the Ichimoku indicator signals with other indicators.
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