Best of all Technical Indicators -: ICHIMOKU Clouds

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Those who want to learn ICHIMOKU Clouds

Guys before we start it’s very much important for you to know the moving average concept. So don’t miss to read our article on the ABCD of Moving Average.

Now, most of you get scared after seeing the Ichimoku diagram and don’t study it further. I don’t want to scare you but it’s important to understand this indicator than scaring/ignoring it. Believe me, once you master this indicator, this scary diagram will talk to you and will make you huge money.

This is the diagram of the Ichimoku indicator. Now for some time ignore this diagram and keep your full focus on only things I will tell. 

As much you think this diagram is complicated believe me it’s much simpler than that. Before we move further, there is one thing you need to know.

Why learn ICHIMOKU Clouds Indicator? Is it necessary ?

So far we studied Candlestick, moving average, pivot points, MACD , RSI, and other articles.  Then at the end of every article, I said to pair these Indicators together for more confirmation of an ongoing trend. Don’t depend on a single Indicator ever.

Now what if I tell you that I have one such indicator which Confirm ongoing trend 4 times.🤯

 So when a Bullish, Bearish, or sideways Trend is confirmed by using 4 ways in the same indicator then it’s hardly possible for that trend to go wrong. Plus it applies to stock, Nifty50, and Nifty bank as well. Now tell me isn’t it the Father of all indicators? Isn’t it worth looking? 🧐

How to add Ichimoku Clouds Indicator in ZERODHA and UPSTOX ? 

In Zerodha 

And in UPSTOX

In both ZERODHA and UPSTOX when you open the chart just clicks on +fx and then search ICHIMOKU Clouds you will see the Indicator. Simply click on it then it will get added. Now without wasting any time let’s learn this indicator.

What exactly ICHIMOKU Clouds consist off ?? 

Remember these colors and 4 names because we are going to analyze the stock in next topic using these parameters. 

1. Conversion line (9 day moving average )  = Dark blue 

2. Base Line ( 26 day moving average)  = Dark red 

3. Leading span A and B  ( cloud ) = blue and red 

4.Lagging span ( 26 days behind than current price ) =  Light brown.

Guys, read, and Check this twice because it’s very important to know these parameters before we move further. If you call baseline as a conversion line by mistake then it won’t give accurate results. So please read and check it again.

How ICHIMOKU Clouds confirm Trend 4 times?

Using Conversion line and Base line strategy 

Now as I told you before conversion line is 9 day moving average ( dark blue ) and base line is 26 day moving average ( dark red). See the below chart of Reliance. 

Ignore everything in this diagram and check Circle 1. 

You can see the conversion line ( blue line ) is going above the baseline ( red line) . That crossover indicates a Bullish trend ahead. And see the upside in the stock from 1200 to 1800. Now let’s see the opposite crossover in the same stock.

Ignore everything and check Circle 1 where you can see the Baseline ( red line ) is above the conversation line ( dark blue ) which is a bearish crossover, see the stock going down from 2250 and making a low of 1850.

2 & 3. Two strategy using  Leading span A and B 

In simple two sentences I can explain you this 

First, if candles are trying to slide below the cloud then Stock is bearish and if it’s trying to break above the cloud then the stock is Bullish.

Second, if the last cloud is Green then the trend is bullish ahead and if the last cloud is red then-upcoming the trend is bearish.

Yes it’s as simple as that😁

Let’s do it with example, 

Again, ignore everything and see circle 1. You can see the Conversion line and Baseline giving bearish crossover but also candles are trying to slide below the green cloud. Also,  see the black box on the extreme right side where you see a small red cloud is in the making suggesting the stock is Bearish as well.

Now let’s see same for bullish trend .

Again ignore everything in the diagram and focus on circle 1. You can see Bullish crossover but you can also notice two things candle ( ongoing trend ) is trying to go above the cloud and there is green cloud formation throughout suggesting Trend is bullish as well. 

4. Lagging span strategy ( light brown line ) 

The lagging span line is currently 26 days behind than an ongoing trend. Now, what it does? , Let’s understand with the help of a diagram.

Ignore everything and see oy circle 1 and circle 2.

In circle 2 you can see lagging span line ( light brown ) is above candle which states the trend is bullish. Same is confirmed by Red and Blue line crossover and also with clouds. 

In circle 1 we got bearish confirmation and in circle 2 you can see Lagging span is below the candle which confirm Trend is bearish.

So that means, if the last point of the lagging span line ( light brown ) is above the candle then Trend is Bullish and if the last point of the lagging span is below the candle then it implies the trend is bearish.

Very very important Guideline for sideways Trend

  1. Trend confirmation will be done if and only if all 4 parameters justify the trend ( either bullish, bearish, or sideways ) 
  2. If the last point of the lagging span line ( light brown) is overlapping candles means not completely below or above then the trend is sideways.
  3. If the current candle is inside the cloud then the trend is sideways, wait for it to go either below or above the cloud comfortably.

Let’s analyze two stocks using ICHIMOKU and then we will see summary of what we learned.

Tata Power ( daily chart ) 

Circle 1 = Conversion line ( blue line) above Base line (Red line) which is Bullish sign

Circle 2 = lagging span is comfortably above candles suggesting bullish trend 

On going candlestick trend is above cloud and last cloud formation is green

So all 4 parameters are satisfied suggesting The trend of Tata Power on 27th Nov 2020 and at closing price of 64.95 is Bullish.

Reliance ( daily chart ) 

Circle 1 = Base line ( RED )  is going above conversion line ( BLUE) which is Bearish sign

Circle 2= Lagging span ( light brown ) line is below candle stick so bearish sign again

Current price is 1929 and candle is below cloud also last  recent cloud formation is RED. 

So all 4 parameters are suggesting Trend of reliance on 27th November closing price  is Bearish.

Now Exercise -: LUPIN and INFY suggesting sideways sign  and Bajfinance , Ramco cement suggesting Bullish trend as per ICHIMOKU Indicator.

What we learned so far ? 

  1. ICHIMOKU Clouds Indicator was discovered by Goichi Hosoda in the 1930s 
  2. This indicator is very much effective as it checks the ongoing trend four times and confirms it.
  3. It consists of conversion line (9 days MA ), baseline ( 26 day MA ), Leading span A and B ( cloud ), and Lagging span ( line behind 26 points) 
    1. Conversion line crossing above baseline is Bullish crossover and vice versa.
    2. Ongoing latest candle ( latest candle ) is below cloud then the trend is bearish and vice-versa. If it’s overlapping the cloud then the trend is sideways/ neutral.
    3. If the last cloud formation is Green then it implies a Bullish trend and if the last cloud is RED then it implies a BEARISH trend.
    4. Lagging span ( light brown) if below Candles then it implies bearish Trend and vice-versa. If the lagging span line is overlapping on candles then the ongoing trend is sideways / neutral. 
  4. If and only if all 4 indicators confirm the BULLISH or BEARISH trend then only Trend is confirmed. More accurate if it’s a Daily/weekly or Monthly chart rather Few minutes
  5. The trend works on both Stock and index. 
  6. Though Ichimoku itself is confirming the trend 4 times still pairing it with MACD, Pivot is better for even more accuracy.

Guys, I don’t think anyone explained the ICHIMOKU Clouds Indicator with this simple language if you like it then do comment.

Don’t forget to Open DEMAT account through us on 

UPSTOX

ZERODHA

ASTHA

Chart courtesy Zerodha KITE

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9 thoughts on “Best of all Technical Indicators -: ICHIMOKU Clouds”

  1. Excellent work and put in very simple language for anyone to understand. I have never come across anyone writing such self explanatory article on Ichimoku clouds.

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