In the post, Ichumoku, his lines, and clouds I explained how the clouds are formed. In this post, I want to talk about why the clouds are important or how you can use them.
The Cloud or Kumo is the area between Senkou Span A and Senkou Span B. The Senkou Spans looks at the past and tries to predict the future.
One of the simplest ways to use the cloud is for trend confirmation. It is important to know what the trend is to know that you should be buying or selling.
When the price is above the cloud you are having an uptrend.
Here we can see in the Daily that USDCAD is in an uptrend. The price is above the cloud.
The cloud also gives you the strength of the trend. In this case, the Senkou Span A is moving up and away from Senkou Span B. The cloud is becoming thicker. This indicates that the uptrend is becoming stronger. The thickening of the cloud confirms the uptrend.
When the price is below the cloud you have a downtrend.
On the Daily of GBPJPY, you see a downtrend. The current price is below the Kumo, the cloud.
As mentioned before, the cloud also gives you the strength of the trend. Also, for the GBPJPY we see Senkan Span A moving down and away from Span B, making the cloud thicker, so confirming that there is a downtrend.
There could also be cases of a thin cloud. When the cloud is very thin, the trend is indecisive and the trend is probably weak or weakening.
The lines forming the cloud, Senkou Span A, and B, both act as an idea of where resistance and support will develop in the future.
In an uptrend having a pullback, the price has a great chance of touching the cloud, before continuing the uptrend.
In a downtrend, the price is likely to make a flag that touches the cloud before resuming its path.
When the price is in the cloud most people don’t trade. They trade when the price breaks out of the cloud. But then you do not only look at the price and the cloud. You will want to know what the other lines, Chickou, Tenkan and Kijun are doing. Now my question is, how can I make some pips with Ichimoku? In a next post, I will talk about the signals you can get from Ichimuko.
Let me know what you think about this post in the comments. Hope to hear soon from you.