In the Ichimoku indicator, the Kumo Cloud is considered a “lifeline” component with many applications. My article today will share detailed information about the Kumo, how to use it to accurately predict trends and support/resistance levels when trading Fixed Time Trade or Forex.
Why is the Kumo cloud so important when using the Ichimoku indicator?
Kumo Cloud (KC) is the heart and soul of the Ichimoku system. This is the most visible component which provides an overview of the trend. You can see more clearly which price-to-trend relationships are taking place.
Current trend:
– Bullish: when the price is above the Kumo cloud.
– Bearish: when the price is below the KC.
– Sideways: when the price is inside the cloud.
Future trend:
– Bullish: when Senkou Span A is above Senkou Span B.
– Bearish: when Senkou Span A is below Span B.
– Sideways: when Senkou Span A is equal to Senkou Span B
One of the great capabilities of the Kumo cloud is that it helps you quickly identify strong levels. Besides, it also expands and narrows along with price movements, creating a multi-dimensional view of support and resistance.
How to recognize the strength of the Kumo cloud in the Ichimoku indicator
The assessment of trend strength is usually determined by future Senkou Span A and future Senkou Span B plus future Kumo cloud.
We will have the following scenarios.
1. Increase sharply when the future Kumo cloud rises + Senkou Span A and Senkou Span B are both pointing up.
2. Moderate price increase when future KC rises + future Senkou Span A is up + future Senkou Span B is moving sideways.
3. Increase weakly when future KC increases + future Senkou Span A is down + future Senkou Span B is moving sideways. At this time, the price may rebound strongly or reverse.
4. Decrease sharply when future KC decreases + Senkou Span A and Senkou Span B lines are both pointing down.
5. Decrease moderately when future KC falls + future Senkou Span A is down + future Senkou Span B is moving sideways.
6. Decline weakly when future Kumo cloud falls + future Senkou Span A is up + future Senkou Span B is moving sideways. This is the time when there will be strong pullbacks or reversals.
The space between the Senkou Span A and the Senkou Span B of the future Kumo cloud indicates the current level of fluctuation. The thicker it is, the longer the price will move sideways. When a big trend occurs, the future Kumo cloud will be thin with both Senkou Span A and Senkou Span B facing the trend of the Kumo.
How to use the Kumo as effective support and resistance levels
If the price is above the cloud, then the current trend is bullish. The top of the cloud will be the first support, and the bottom of the cloud will be the second support.
In my experience, these two support levels really work. But either of those levels will give a slightly delayed signal. Usually, I would wait for that day’s price to end to see if the price closes below the cloud. If yes, then consider the possibility of price reversal.
On the contrary, the two highest and lowest levels of the Kumo cloud are strong resistance zones in a downtrend.
Usually, the price will break out through the first resistance/support level of the cloud, but then it will stop somewhere in the middle of the cloud. When this happens, we have to look at the current candlestick pattern to analyze whether the price has signaled a reversal or not.
The horizontal part of the Senkou Span B is a strong support or resistance level. The longer it is, the higher the confidence level. The top/bottom of Senkou Span A is also a strong support/resistance level.
Summary
The Ichimoku indicator is a perfect tool for you. It is convenient and can analyze trends accurately using the Kumo cloud. You may find it difficult to use it at first. But once you get used to it, you will find it very interesting.
In the next part, we will go into trading strategies with the Ichimoku indicator to apply and make profits. Stay tuned to the Ichimoku series for more interesting facts about this “divine” indicator.
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