The Best Trend Trading Indicators: Ichimoku Cloud

One of the more popular and sophisticated forex indicators is the Ichimoku Kinko Hyo, or Ichimoku.

Its name describes its function as it translates to “one look equilibrium chart”. It’s a complex combination of calculations that shows you the most important trading information of the forex market in one glance.

Although it looks really complicated, it’s quite logical in construction and easy to understand. It’s very popular especially among web acting forex analysts.

This is because aside from being generally useful in pretty much most FX trading scenarios, it also looks really cool! So, here’s how to get the most out of it.

The Nuts and Bolts

Ichimoku was developed in the late ’60s by a journalist, not an FX trader. At the time, forex wasn’t a widespread practice, and the indicator was mostly oriented towards stocks, which usually trend in a direction over an extended time.

It works best in forex under similar conditions, in longer-term charts.

Unlike other forex trading indicators developed after computers, it doesn’t use moving averages. It uses the median between high and low over time.

This calculation of 9 of the period highs plus 9 of the period, then divided in half (the average) forms the basis of the indicator: the conversion line.

The Similarities

From there, using high and low averages instead of a moving average, Ichimoku works similar to most of the other forex indicators. Most notably MACD, by comparing faster (shorter-term) averages to longer-term averages.

A distinctive feature of the FX indicator is the “cloud.” This is a shaded area that is often in front of the market price. This gives the look that it’s predicting the market’s direction, and is a nice visual aid.

We do this by displacing the moving high low calculation forward, unlike “traditional” moving averages that place the line at the current market price.

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