Ichimoku Cloud explained, and how to write it as a condition
Ichimoku looks complicated because it draws five things at once. Each one is a simple midpoint, and the cloud is just two of them shaded in. This guide is what each line is, why the cloud sits ahead of the candles, and the five comparisons SixOne8 offers.
The lines
Every Ichimoku line is a midpoint: half way between the highest high and the lowest low of some number of bars. Not an average of closes, as a moving average is — the middle of the range.
- Conversion line. The midpoint of the last nine bars. The fast line.
- Base line. The midpoint of the last twenty-six bars. The slow line.
- Leading Span A. Half way between the conversion and base lines — but drawn twenty-six bars ahead of the bar it was calculated on.
- Leading Span B. The midpoint of the last fifty-two bars, also drawn twenty-six bars ahead.
The cloud is the space between the two leading spans. Because both are displaced forward, the cloud under today's candle was calculated from bars that closed twenty-six bars ago: it is history projected forward, not a forecast. The app draws it ahead of price from bars that have already closed, and nothing in the cloud ever changes once it has been drawn.
The four settings
The three lengths — 9, 26 and 52 — and the displacement of 26 are the originals, chosen for a six-day trading week. Some people halve or double them; the app lets you set each. Whatever you choose, they are counted in bars of the timeframe the condition reads, and a change to the displacement moves the cloud along the chart without changing its shape.
Writing it as a condition
These are the comparisons SixOne8 offers, in the builder's own words.
- Price above the cloud. The bar closed above the higher of the two spans. A state — the common definition of "the trend is up" in this system.
- Price below the cloud. The bar closed below the lower span. The same, downward.
- Price inside the cloud. The close is between the two spans. Usually read as "no clear trend", and often used in its negated sense — a strategy that requires price to be above the cloud is also requiring it not to be inside.
- Conversion line crosses above / below the base line. The fast line moves through the slow one. Neither line is the price. True only on the bar of the crossing — the moment this indicator can supply, where the cloud conditions are states.
Ichimoku(9, 26, 52) on 4h · price above the cloud
Read it as a sentence: on the 4-hour chart, price closed above the cloud. As a condition it is a slow, wide filter: the cloud is built from fifty-two bars and sits twenty-six bars behind, so price has to have been rising for some time before it clears the cloud, and it takes a real fall to drop back through it.
What the cloud is good at
It is a trend filter with a built-in neutral zone. A moving average splits the chart into above and below, and price crosses it constantly in a range; the cloud has a thickness, and "inside" is a third answer that a moving average cannot give. That makes price above the cloud on a slow timeframe a quieter context condition than price above the 50-period average, at the cost of lag. The conversion-base crossing is the fast half of the system, and most strategies that use Ichimoku take the context from the cloud and the moment from the cross.
Before you trust it
Run an entry check. It will tell you whether, on the market you care about, the moments this condition fired moved any differently from a random moment over the history tested. That is a fact about the past on that market, and it is the only kind of fact a test here produces.