Ichimoku Cloud know-how: Trend, signals & trading setups

• The Ichimoku Cloud provides a “one-look” view of trend, momentum, and dynamic support/resistance, making it ideal for trend-following strategies.
• Its six components: Tenkan-sen, Kijun-sen, Span A, Span B, the Kumo, and Chikou Span, work together to identify trend direction, trend strength, and future support and resistance zones.
• Core strategies include Kumo breakouts, Tenkan/Kijun pullback entries, and Chikou Span filtering to avoid false signals and validate trend shifts.
• The Cloud is most effective in trending markets and can be enhanced with momentum oscillators for better timing; it performs poorly in tight, choppy, or scalping conditions.

The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a versatile indicator that offers a clear read on trend direction, momentum, and key support and resistance zones. Its name translates to “one-look equilibrium chart,” reflecting its purpose: with a single glance, traders can gauge market conditions and spot potential trading signals.

In a nutshell, Ichimoku Cloud filters out the “noise”, making it more appropriate for trend-following rather than scalping strategies. Unlike lagging indicators such as simple moving averages, the Cloud can offer a potential forward-looking view of the market, helping traders spot potential trend continuation or trend reversals in advance.

Developed by journalist Goichi Hosoda and published in 1969, the tool may appear complex on the chart due to its array of five components, but its underlying concepts and signals are structured, logical, and easy to grasp.

Let’s start by breaking down its six components and how they are calculated.

• Tenkan-sen (Conversion line)

Formula: (9-period high + 9-period low)/2

Purpose: Early trend signal and momentum gauge.

Behaviour: Responsive. Moves quickly.

• Kijun-sen (Base line)

Formula: (26-period high + 26-period low)/2

Purpose: Stronger trend confirmation and acts as dynamic support/resistance.

Behaviour: Slower, more stable anchor.

• Senkou span A (Leading span A)

Formula: (Conversion line + base line)/2, plotted 26 periods forward

Purpose: First boundary of the Cloud; short-term equilibrium.

• Senkou span B (Leading span B)

Formula: (52-period high + 52-period low)/2, plotted 26 periods forward

Purpose: Longer-term equilibrium; reacts very slowly.

• Kumo (Cloud) = Span A + span B

Purpose: Trend filter, volatility gauge, support/resistance zone.

Interpretation:

Price above Cloud (green coloured) suggests a bullish trend

Price below Cloud (red coloured) suggests a bearish trend

Price inside the Cloud represents a choppy/sideways trend

• Chikou span (Lagging span)

Formula: Current closing price plotted 26 periods backward

Purpose: Trend confirmation tool.

Interpretation:

When the lagging span is above past prices, it suggests an uptrend, and below past prices indicates a downtrend.

The Ichimoku Cloud supports four core trading approaches: the Kumo breakout, the Tenkan–Kijun trend-continuation pullback, the Chikou span confirmation filter, and future support and resistance zones identification. These strategies work together to help traders identify breakouts, trend resumption setups, and signal validation.

This strategy is utilized for early trend identification after consolidation, with the following conditions for a bullish Kumo breakout.

Price breaks above the cloud.

Cloud is turning bullish (Span A crossing above span B)

Using the hourly chart of AUD/USD as an example, the price action of AUD/USD from 25 November 2025, 11:00 am Singapore Time (SGT) to 26 November 2025, 12:00 am SGT traded sideways inside the Kumo Cloud (see Fig. 2).

On 26 November 2025, at 1 am SGT, the AUD/USD broke above the Cloud, which suggests that the earlier minor sideways/consolidation had changed into a minor uptrend.

To increase the probability of this bullish trend change, we can wait for the Span A to cross above the Span B, which occurred on 26 November 2025 at 4 am Singapore time, to establish a bullish set-up (see Fig. 2).

In addition, these are the bearish set-up conditions for a bearish Kumo breakdown (see Fig. 3).

Price breaks below the cloud.

Cloud is turning bearish (Span A crossing below span B)

This trend-following strategy focuses on initiating long positions near support during a strong uptrend and identifying short opportunities near resistance in a strong downtrend. It aims to join the prevailing trend with well-timed entries at key pullback zones.

These are the bullish set-ups:

Price above the Cloud (green coloured).

• Tenkan-sen (Conversion line) is above Kijun-sen (Base line).
• Pullback touches or dips slightly below Tenkan-sen (Conversion line) or Kijun-sen (Base line).
• Price closes above Kijun-sen (Base line) with a bullish candlestick.

Based on the hourly chart of USD/JPY as an example, by referencing the period from 18 November 2025, 8 am Singapore time (SGT) to 18 November 2025, 3 pm Singapore time (SGT) (see Fig. 4).

On 18 November 2025, at 8 am SGT, the USD/JPY was trading in a minor uptrend as its price actions were above the Cloud and Tenkan-sen (Conversion line) was above Kijun-sen (Base line).

Price started to pull back on the same day at 9 pm SGT and hit the Kijun-sen (Base line) at 12 pm SG time, while the Cloud had turned “green” earlier at 8 am SGT from “red”.

The bullish opportunity arose when the hourly candlestick turned bullish with an hourly close above the Kijun-sen (Base line) at 1 pm SGT time on 18 November 2025, and a rally occurred on the USD/JPY thereafter.

On the flip side, these are the bearish set-ups using the Tenkan/Kijun trend continuation pullback strategy.

Price below the Cloud (red coloured).

• Tenkan-sen (Conversion line) is below Kijun-sen (Base line)
• Pullback touches or rebounds slightly above Tenkan-sen (Conversion Line) or Kijun-sen (Base line)
• Price closes below Kijun-sen (Base line) with a bearish candlestick

Based on the hourly chart of GBP/USD as an example, by referencing the period from 29 October 2025, 11 pm Singapore time (SGT) to 30 October 2025, 12 am Singapore time (SGT), the above chart illustrates a bearish Tenkan/Kijun trend continuation pullback set-up where the GBP/USD rebounded on 29 October 2025, 11 pm SGT to retest the Kijun-sen (Base line) (see Fig. 5).

A quick recap on the mechanics of the Chikou Span (Lagging span), where the current price is being pushed back 26 periods to compare the current price level with the past price level, 26 periods ago.

In a nutshell, the lagging span is being used as a trend confirmation tool to filter out false breakouts from prior consolidation/sideways ranges.

Hence, it can be used in conjunction with the Kumo (Cloud) breakout strategy.

Using the hourly chart of CHF/JPY as an example to filter a Kumo (Cloud) bullish breakout on 9 December 2025, 12 pm Singapore time to 9 December, 4 pm Singapore time.

The hourly Chikou Span (Lagging Span) of the CHF/JPY is above its prior 26-period price, which suggests bullish momentum in absolute price level terms, and in turn reduces the odds of a failure bullish breakout.

To filter a Kumo (Cloud) bearish breakdown, the Chikou span (Lagging span) of the observed instrument should be below its prior 26-period price.

Still recall that Kumo (Cloud) is derived from the summation of Senkou Span A (Leading span A) and Senkou Span B (Leading span B) that are shifted forward 26 periods, which in turn allows the Kumo (Cloud) to act as a potential future support zone if price is above the Cloud, and as a potential future resistance zone if price is below the Cloud.

For example, using the 1-hour chart of USD/JPY as of 9 December 2025, 6 pm Singapore time, the potential future support zone rests at 156.00/155.40 (see Fig. 7).

As for future potential resistance zone illustration, we can take a look at the 1-hour chart of USD/CAD as of 9 December 2025, 6.50 pm Singapore time, where a future resistance zone stands at 1.3855/1.3875 (see Fig. 8).

Also, a large or thick Cloud indicates potentially stronger support or resistance levels, while a small or thin one can indicate weaker support and resistance. Hence, price breakouts and breakdowns through a thick Cloud are considered more significant.

In tight, choppy markets where the Ichimoku Cloud often generates false signals — particularly during very short-term scalping — the indicator becomes less effective, as it is designed for trend-following rather than rapid intraday swings.

The Ichimoku Cloud is a comprehensive indicator that highlights trend direction, momentum, and dynamic support and resistance zones.

Signals are most reliable when aligned with the broader trend. In an uptrend, the Cloud acts as a support area, making bullish signals more meaningful when the price pulls back or consolidates near it. In a downtrend, the Cloud serves as resistance, so bearish signals carry more weight when the price approaches the cloud during an oversold bounce or consolidation.

The Ichimoku Cloud also works well alongside other tools. Traders can use the Cloud to define the prevailing trend and pair it with momentum oscillators such as RSI and Stochastic to pinpoint overbought or oversold conditions for more precise timing.