What is the Forex Cloud Indicator
The forex cloud indicator is also commonly known as the Ichimoku Kinko Hyo indicator. This indicator was created by a Japanese newspaper writer and was initially designed for the USD/JPY currency pair, but it works with all major pairs in all time zones.
Ichimoku means ‘a glance’, Kinko means ‘equilibrium,’ and Hyo means ‘chart.’ This indicator literally means a glance at a chart’s equilibrium. The reason this indicator is called the forex cloud indicator is because there is a cloud shape formation present as well.
Forex Cloud Strategy
The forex cloud indicator consists of four lines. The movement and positioning of these four lines are important to understand if you want to know how to trade this indicator.
- The blue line is the Kijun Sen and is the average of the highest high and lowest low for the last 26 periods.
- The red line is the Tenken Sen and is the average of the highest high and the lowest low for the last nine periods.
- The green line is the Chikou Span and is the current market price, just plotted 26 periods behind to help you visualize how the current price compares to the price of the market 26 periods prior.
- There is also the cloud which is basically formed using two lines called Leading Span A and Leading Span B.
Buy Signal
The forex cloud indicator gives out a buy signal when two circumstances take place:
- The Leading Span A line crosses above the Leading Span B line
- The red Tenken Sen line crosses above the blue Kijun Sen line
Sell Signal
The forex cloud indicator gives out a sell signal when two circumstances take place:
- The Leading Span B line crosses above the Leading Span A line
- The blue Kijun Sen line crosses above the red Tenken Sen line
Forex Cloud Indicator Pros & Cons
There is a reason why this indicator is popular among many. However, there is also a reason why many traders still choose not to use it. Here are the pros and cons of the forex cloud indicator:
Pros
- Determines trend, support, resistance, and momentum
- Measures direction and intensity of market trends
- Easier to optimize and customize the settings on MT4
Cons
- Chart looks visually complex and cluttered
- Less accurate during a slow and inactive market
- Works best on longer timeframes like H1 and above
Conclusion
The forex cloud indicator is one of the most detailed and technical indicators in the industry. It takes into account several factors that could impact market conditions and also works on all timeframes and all the major forex pairs. That being said, this indicator is not to be trusted in a slow market, and it works best on higher timeframes. Most people are afraid to try it out as it looks very complex on the chart. It is best to first test out this indicator in a demo account to see if this is the right tool for your forex trading strategy.
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