Ichimoku Cloud Basics for Crypto Trading Beginners

Are you tired of using multiple indicators together in crypto trading? Have you ever wondered if there is an all-in-one indicator you can use to get all the important insights, such as price, support and resistance, momentum, and trading signals? Actually, there is one such indicator that can do the work of several indicators combined. It is called the Ichimoku Cloud indicator. Does the title sound complicated? Yes, just like the title, it is certainly a complex indicator. But if you have the patience to spend a few minutes to understand its core concept, you can easily master this indicator. Are you ready? Let’s dive in! 

1. Ichimoku Cloud: What’s It

The Ichimoku Cloud indicator is an advanced technical indicator originating from Japan. Created by Goichi Hosoda after over 40 years of development in the 1960s, it offers insights into the past, present and potential future of an asset’s price. 

2. Components of Ichimoku Cloud 

The Ichimoku Cloud indicator consists of five key lines:

• Conversion Line (Tenkan-sen): A moving average of the past nine candlesticks.

• Base Line (Kijun-sen): A moving average of the past 26 candlesticks.

• Leading Span A (Senkou Span A): It is the average of the Conversion and Base Lines, projecting 26 periods into the future.

• Leading Span B (Senkou Span B): An average of the last 52 candlesticks, projecting 26 periods into the future.

• Lagging Span (Chikou Span): The closing price of the current candlestick, projecting 26 periods into the past.

2.1. Calculating Ichimoku Cloud lines 

Here are the Ichimoku Cloud component calculations.

• Conversion Line 

[(9-period high + 9-period low) / 2]

• Base Line 

[(26-period high + 26-period low) / 2]

• Leading Span A

[(Conversion Line + Base Line) / 2], projecting 26 periods into the future. 

• Leading Span B

[52-period high + 52-period low) / 2], projecting 26 periods into the future. 

• Lagging Span Line 

Closing price of the currency period, projecting 26 periods into the past.

3. Steps to Launch Ichimoku Cloud on a TradingView Chart 

Launching the Ichimoku Cloud indicator on a TradingView chart is a simple 8-step process. Here are the steps:

• Step 1: Sign In

Log in to your TradingView account.

• Step 2: Find a Chart 

Search for and select a random chart to analyse.

• Step 3: Open Daily Chart

On the chart, switch to the preferred timeframe. Better it is to select the one-day timeframe. Use the timeframe icon located in the top left corner.

• Step 4: Access Indicators 

Tap on the ‘indicator’ icon, situated adjacent to the ‘timeframe’ icon.

• Step 5: Launch Indicator 

Search for the Ichimoku Cloud indicator. Click on the indicator to open it.

• Step 6: Configure Settings 

Click on the ‘settings’ icon on the indicator to open the settings box. Under ‘inputs’, ensure the following settings:

• Conversion Line Length = 9
• Base Line Length = 26
• Leading Span B Length = 52
• Lagging Span Length = 26

• Step 7: Apply Indicator 

Click ‘OK’ to apply the Ichimoku Cloud indicator on your TradingView chart.

• Step 8: Begin Analysis 

Start your analysis using the indicator on the chart. 

4. What Each Component of Ichimoku Cloud Conveys 

To understand what the Ichimoku Cloud indicator actually conveys correctly, it is better to break it down into its parts and see what each part tells you individually. 

Let’s dive a bit deeper into what each component of the Ichimoku Cloud conveys.

• Cloud 

The cloud serves as a visual representation of market sentiment. When the price is above the cloud, it suggests a bullish market. When the price is below the cloud, it indicates a bearish market. Meanwhile, when the price is within the cloud, it often signifies sideways or consolidation, where the market lacks a clear trend.

• Conversion-Base Line Signals 

These lines, Conversion Line and Base Line, help identify potential trend reversals. A bullish signal occurs when the Conversion Line crosses above the Base Line, suggesting a possible upward price movement. A bearish signal occurs when the Conversion Line crosses below the Base Line, indicating a potential downward price movement.

• Price-Base Line Signals 

These signals involve the relationship between the price and the Base Line. A bullish signal arises when the price crosses above the Base Line, signalling a potential uptrend. Conversely, a bearish signal occurs when the price crosses below the Base Line, implying a possible downtrend. 

• Lagging Span

The Lagging Span provides insight into the strength of the current trend. In a strong trend, the Lagging Span is noticeably separated from the current price. In a weak or ranging market, the Lagging Span is closer to the current price, suggesting indecision or lack of a clear trend. 

5. How to Use Ichimoku Cloud Perfectly 

To use the Ichimoku Cloud effectively, combine insights from each component. 

To start, observe the cloud colour. A green cloud suggests an uptrend, while a red cloud indicates a downtrend. This helps you identify the overall market direction.

• Going Long (Buying)

If you want to go long, look for these signals:

• Price above the green cloud for trend confirmation
• The Conversion Line above the Base Line
• Price crossing above the Base Line, adding further confirmation

• Going Short (Selling)

For a short trade, focus on these signals:

• Price below the red cloud, indicating a potential downtrend
• The Conversion Line below the Base Line
• Price crossing below the Base Line for added confirmation

6. Disadvantages of Using Ichimoku Cloud 

Though Ichimoku Cloud is an advanced indicator and is better than most, it also has a few important limitations.  

• Complex for Beginners 

The Ichimoku Cloud indicator can be overwhelming with its various components, making it challenging for beginners to understand. 

• Lagging Indicators

Some signals may lag, causing traders to enter or exit positions later than desired.

• False Signals 

It may generate false signals during choppy or sideways markets, leading to unprofitable trades. 

• Not Ideal for Short-Term Trades 

It is better suited for longer-term trading, potentially missing out on short-term opportunities.

• Requires Regular Monitoring 

Successful use demands continuous monitoring, which may not suit all trading styles or schedules. 

7. Endnote 

The Ichimoku Cloud indicator is a complex yet powerful indicator that provides insights into market trends and potential reversals. It consists of five key lines and offers valuable signals for traders, although it may be challenging for beginners to grasp fully. While it is better suited for longer-term trading due to potential lag and false signals, it can be a valuable tool when used in conjunction with other analysis methods. Traders should be aware of its advantages and limitations and consider their trading style when incorporating it into their strategies.