Using the Ichimoku Cloud at IQ Option

Using the Ichimoku Cloud at IQ Option

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IQ Option have detailed another of the trend indicators that their exchange platform offers traders who use their platform, Ichimoku Cloud.

Sometimes also known as the Ichimoku Kinko Hyo, the Ichimoku Cloud is a trading indicator that will help traders know the direction and reversal points of a market trend. Therefore, in nature, it seems to have no difference to any other indicator in the past but in reality, it has multifaceted uses. The second being that it is able to gauge the speed that a price might change and so can also work as an oscillator, as well as being able to locate support and resistance levels.

With this considered, it is an invaluable tool to your trading and one that is worth knowing how to use properly.  Fortunately, this is the topic of IQ Option’s latest guide and they have shown you both how it works and how it can be implemented when trading at their platform. The first thing to understand is that the Ichimoku Cloud is made up of 5 separate elements which are:

  1. Conversion Line (Tankan)
  2. Standard Line (Kijun)
  3. Chikou Span (lagging line)
  4. Cloud Line 1 (Senkou Span A)
  5. Cloud Line 2 (Senkou Span B)

Each of these elements contributes their purpose towards the technique on a whole.  The first two, the conversion and standard lines, are referred to as the equilibrium lines. This is because the former averages the highest high and lowest lows over the previous 9 periods. Meanwhile, the standard line averages these highs and lows over 26 periods. As such, serves as a dynamic support and resistance level. If the conversion line crosses the standard line, then it indicates a trend reversal. 

Meanwhile, the two cloud lines, aka Senkou Span A and Senkou Span B, are the second moving averages which together form the so-called “cloud” which the technique takes its name from. The Senkou Span A will average the two equilibrium lines and shift the derived values 26 periods ahead. While the Senkou A average highs and low from a massive 52 period and this shifts these results 26 periods forward. As you can see, while separate, the lines tell a combined story.

This story manifests itself as “the cloud” which will be shaded area seen on the chart. As per, IQ Option, “It is a cloud, which changes color from red to green and vice-versa every time these two boundaries cross each other.” A green colour on these clouds would indicate a bullish market, while a red would indicate a bear market. This cloud will change colour when it is possible to reverse the trend, with the vertical distance within the borders of the cloud, serving a market volatility indicator.

While this makes up 4 of the features, the 5th and final, the Chikou Span will represent the closing price of the current candle which is shifted back by 26 periods. The lagging moving average visible here, helps traders confirm other signals that the indicator receives.

This might sound a bit overwhelming, but there are two ways by which to sum up how the Ichimoku Cloud works; A) Ichimoku Cloud suggests a bullish trend when candles are above the cloud, and B) Ichimoku Cloud suggests a bearish trend when the candles are below the cloud.

If you are keen to start putting theory into practice start using it by accessing indicators at IQ Option and select the Ichimoku Cloud option.

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