Cloud Control – Ichimoku Cloud Indicator

Legal Notices
NO RIGHT TO REDISTRIBUTE MATERIALS. You agree that you will not re-distribute, copy, amend, or
commercially exploit any materials found on in this document or related Web Sites without Sharptrade
Partners, LLC., Forex Impact, and/or ForexImpact.com express written permission, which permission may
be withheld in Sharptrade Partners, LLC, ForexImpact.com, and/or Forex Impact sole discretion.

NO INVESTMENT ADVICE. The information contained in this product has no regard to the specific
investment objective, financial situation or particular needs of any specific recipient. Sharptrade Partners,
LLC and/or FXImpact.com does not endorse or recommend any particular securities, currencies, or other
financial products. The content published in this document is solely for informational purposes and is not
to be construed as solicitation or any offer to buy or sell any spot currency transactions, financial
instruments or other securities. Sharptrade Partners, LLC and/or FXImpact.com does not represent or
guarantee that any content in this document is accurate, nor that such content is a complete statement or
summary of the marketplace. Nothing contained in this document is intended to constitute investment,
legal, tax, accounting or other professional advice and you should not rely on the reports, data or other
information provided on or accessible through the use of this product for making financial decisions. You
should consult with an appropriate professional for specific advice tailored to your situation and/or to
verify the accuracy of the information provided herein prior to making any investment decisions.

INDEMNITY. You agree to indemnify and hold Sharptrade Partners, LLC and/or FXImpact.com, its
parent, subsidiaries, affiliates, directors, officers and employees, harmless from any claim, demand, or
damage, including reasonable attorneys’ fees, asserted by any third party or arising out of your use of, or
conduct on, this product and/or website.

COPYRIGHT. The Product, Web Site, and Tools are protected by copyright law and international treaty
provisions and may not be copied or imitated in whole or in part. No logo, trademark, graphic or image
from the Web Site may be copied or retransmitted without the express written permission of Sharptrade
Partners, LLC., FXImpact.com, Forex Impact. All associated logos are trademarks or registered
trademarks of Sharptrade Partners, LLC., FXImpact.com, Forex Impact and may not be copied or
transmitted without the express written permission of Sharptrade Partners, LLC., FXImpact.com, Forex
Impact.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 2
 Cloud Control – Ichimoku Cloud Indicator

Table of Contents

Ichimoku Cloud Indicator: 4

SPY Weekly Trade: 5

GBPUSD 1 Hour Trade: 7

Gold 4 Hour Trade: 9

Introduction to Ichimoku Clouds: 12

Final Thoughts 18

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 3
 Cloud Control – Ichimoku Cloud Indicator

Ichimoku Cloud Indicator

Lately there’s been a lot of buzz about Ichimoku Clouds, and for good
reason. It’s a technical indicator that clearly illustrates support and
resistance levels and trend direction all in one. Fans of Candlesticks consider
Ichimoku Clouds an integral part of their analysis.

In simple terms, you are a buyer of a market when price is above the Cloud,
and a seller below the cloud.

The Cloud Control trading system uses the strengths of the indicator while
balanced in context with the other 4 parts of the matrix. I can’t stress that
enough because I know someone is going to go off half cocked and put on
trades based on what they THINK the system is and get bushwhacked. Don’t
say I didn’t warn you…

Still, there are beautiful trends defined by the Ichimoku Cloud that gives you
an idea of why this time proven indicator is a key part of the bank’s system,
Cloud Control.

Now, we use the cloud indicator to determine the long term trend and the
short term trend. It’s the short term trend part of the indicator that triggers
a trade.

Instead of going through the indicator in great detail first, I have chosen to
show you how we use it to trade. Then, I go through how the indicator is
generated. I have chosen to do it this way, so that those that want to dive
right in can do so quickly. For those of you that like to know how the engine
works first, just skip the next few pages that are more specifically how to
trade related.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 4
 Cloud Control – Ichimoku Cloud Indicator

Cloud Control Indicator:

SPY Weekly Trade:

On the chart below, can you identify when the long term trend changed from
a buy to a sell? It’s probably not were you think it is. This is one of the ways
that we use the Cloud Indicator is to determine the long term trend. When
we see a long term trend change, this is when we look at the other elements
to determine if we have a trade.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 5
 Cloud Control – Ichimoku Cloud Indicator

SPY Weekly Trade:

In the lower right hand corner, I have circled the long term trend change.
When you see this happen it triggers a review of the other elements to see if
there is a trade setup.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 6
 Cloud Control – Ichimoku Cloud Indicator

GBPUSD 1 Hour Trade:

The chart below shows the GBPUSD moving to the down side. Therefore, we
will be looking for the Cloud Indicator to start moving to the upside. It’s the
trend reversal where we will look for a trade.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 7
 Cloud Control – Ichimoku Cloud Indicator

GBPUSD 1 Hour Trade:

Might notice that on the chart below the long term trend has not change. It’s
still moving to the down side. The first step in trading a Cloud trade is that
the long term trend is moving in a new direction.

You can see on the chart below in the upper left hand corner where the
Cloud Indicator went from long to short.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 8
 Cloud Control – Ichimoku Cloud Indicator

Gold 4 Hour Trade:

The four hour gold chart below shows several changes in the long term
direction, as well as short term. Let’s move on to the next chart to see more.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 9
 Cloud Control – Ichimoku Cloud Indicator

Gold 4 Hour Trade:

On the chart below, we have times where the long term part of the Cloud
Indicator changed directions. Two of them would have prompted us to look
for a trade and the other two would not have.

Starting in the lower left hand corner, I have circled where the long term
part of the Cloud indicator moved from short to long. The short term part of
the cloud indicator, shown in yellow and blue, is moving to the upside. Sense
both the long term and short term are moving higher, we would look at the
other elements for a trade.

The next time the long term part of the Cloud Indicator changed directions it
moved from long to short. However, the short term part of the Cloud
Indicator was showing long, so there was no trade to look for.

The following long term change in the Cloud Indicator resulted in it moving
higher, which was against the short term trend which was moving lower.
This results in there not being a trade. We must have the long term and
short term moving together for there to be a trade.

The final time that the long term part of the Cloud Indicator changes
direction is when it moves from a buy to a sell in the upper right hand
corner. When this occurs the short term is in a sell. Sense both long term
and short term parts of the Cloud Indicator are moving together, we look to
the other elements to determine if we have a trade.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 10
 Cloud Control – Ichimoku Cloud Indicator

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 11
 Cloud Control – Ichimoku Cloud Indicator

Introduction to Ichimoku Clouds

There are many trading concepts that get talked about at length from day
one, but once in a while you hear about an indicator that hasn’t gained the
same widespread notoriety. Ichimoku Clouds is an interesting technical
trading system because it has been used successfully in Japan for decades,
but only very recently has it begun to appear in the United States. The
Ichimoku cloud is a technical system that emphasizes illustrating support
and resistance values in a simplified form. It’s often considered a further
extension of the extremely popular and commonly used candlestick charting
system.

A brief background
The full name of this trading technique is Ichimoku Kinko Hyo but most
traders just refer to it as Ichimoku to keep things short and simple, I like
Cloud personally. This was developed in the late 1930s by a journalist
named Goichi Hosoda, who used to be known as Ichimoku Sanjin. History
has it that he spent thirty years helping to perfect the technique before
revealing it to the public in the late 1960s. Named “one equilibrium chart”
the idea is that a trader used to this system can see the unique “clouds” that
form and see what the market value is doing at a glance.

Ichimoku technical analysis is considered a moving average-based trend

identification system and many traders believe since it contains more data
points than your normal candlestick chart; it also provides a better and more
clear picture of the potential price movements ahead. However one of the
huge differences is that moving averages plotted in Ichimoku are built using
the 50% point of the highs and lows as opposed to closing prices.

How does Ichimoku work?

When dealing with the Ichimoku cloud it’s important to realize that four of
the five plots within Cloud are based on the actual average of the high and
low over a given period of time. This means the first pot could be a simple
average based on a 10 day high and a 10 day low. This made a lot of sense
prior to computers, and now the 9 day moving average can be plotted in its
place as well.

The Ichimoku Cloud consists of five plots you’ll need to learn:

Tenkan-sen (Conversion Line): This point is figured out by taking the

value of the highest high of a period and adding it to the lowest low of the
same period before dividing by two, or:

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 12
 Cloud Control – Ichimoku Cloud Indicator

Tenkan-sen = (period high + period low)/2

Many traders choose to go with a 10 day moving average to help give a

good look at the short term Tenkan-sen of any price chart. Many traders will
use the Tenkan value to help them determine where to put in a stop in case
the trade goes wrong. When it comes to the Tenkan-sen the market is
bullish if the price goes above it, but bearish if the price goes below it. The
Tenkan Sen should always be pointed the same direction as the trend, and a
steeper angle means a greater trend.

Kijun-sen (Base Line): The Kijun-sen, or base line, represents the medium
term movement of prices. To figure out this value, you need to take the
highest high plus the lowest low, then divide that total by 2 for 26 periods.
This leads to a 26 week mid average The market is bullish if the price is
above the Kijun Sen, the market is bearish if the price is below the Kijun
Sen. This point should also point the same direction as the trend and once
again the steeper the angle, the stronger the trend.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 13
 Cloud Control – Ichimoku Cloud Indicator

This trend must be established for 26 days – this means we will miss the
beginning of the trend, but that’s fine. The key here is to have a line that
comes from a 26 day established trend. This line is a major
support/resistance value and so any price cross should be closely watched.
When a price crosses over the Kijun-sen it almost always means a minor
pullback, major pullback, or trend reversal is taking place.

Chikou Span (Lagging Span): The Chikou Span is meant to help represent
the momentum of the price movement. This indicator is used to help
determine if a trend might occur or if it doesn’t have the strength to do so.
This is the current price shifted back 26 periods. You compare today’s price
movements to a price from 26 trading periods ago. If the Chikou Span is
above the previous price then the sentiment is bullish. It’s bearish if the
current price is below price from 26 periods ago. If the price is about the
same, look at it as consolidation. This part of the Cloud Indicator I typically
have turned off.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 14
 Cloud Control – Ichimoku Cloud Indicator

Senkous make up the cloud

The last two indicators are often grouped together because they make up
the famous and distinctive Ichimoku clouds, which are Senkou Spans A & B.
These create the well-known cloud boundaries that come with this trading
technique and are critical for making Ichimoku technique profitable. These
two make up the borders of the clouds, and there’s even color coating
involved for an easy first glance. If Senkou A is larger than Senkou B then
the color is yellow to indicate a bullish cloud. If the opposite is true, the color
is red to indicate a bearish cloud.

On the chart below, a bullish cloud is shown in light brown and a bearish
cloud is shown in a light purple.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 15
 Cloud Control – Ichimoku Cloud Indicator

Senkou Span A (Leading Span A): This is figured out by taking the
Tenkan Sen and adding it to the Kijun Sen before dividing it all by two. This
span also is called the leading span because it needs to be plotted 26
periods into the future to form the cloud, and it forms the faster of the two
cloud boundaries. This combines with Senkou Span B to make the full cloud.

Senkou Span B (Leading Span B): This is figured out by taking the 52-
period high + 52-period low and then dividing that amount by 2. Combined
with Senkou Span A, you get the full cloud.

Kumo Clouds
There are several things that you need to know about Ichimoku Clouds in
order to trade them effectively. When you are considering sentiment and
strength, look for the following:

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 16
 Cloud Control – Ichimoku Cloud Indicator

Current Sentiment:
 Price is above the Kumo Cloud it’s bullish
 Price is below the Kumo Cloud, it’s bearish
 Price in the Kumo Cloud means it’s consolidating

Future Sentiment:
 Price is bullish when Senkou A is above B
 Price is bearish when Senkou A is below B
 Price is consolidating when the two are equal

The strength of the future cloud is determined in part by both of the Senkou
trends. You need to look at a variety of things to determine the strength of
the future cloud.

Strong bullish take place when both Senkou A and Senkou B are pointing
upward in a trending fashion.

Medium bullish is what happens when the future kumo future is bullish,
future Senkou A is pointing upward, but Senkou B is flat.

Weak bullish is how you define the market when the future Kumo Future is
bullish, but Senkou A points downward and Senkou B is flat.

The Ichimoku clouds also give you clues as to when the market is bearish.

Strong bearish takes place when the future kumo future is bearish and
both of the Senkou futures point downward in trend.

Medium bearish is the state of the market when the future kumo future is
bearish, the future Senkou A is pointing downward, and the future Senkou B
is flat. Generally traders will interpret this situation as meaning that there is
a minor or major pullback coming up with high volatility.

Weak bearish takes place when future kumo future is bearish, future
Senkou A is pointing downward, and future Senkou B is flat.

This knowledge allows a trader to look at a detailed Ichimoku charts to see

when it’s time to buy above the cloud or sell below the cloud. This technique
can be extremely effective for trading, especially when used in conjunction
with the other elements in Cloud Control Trading. When combined properly,
these techniques work very well to help identify profitable trading
opportunities.

Copyright © Sharptrade Partners LLC - All Rights Reserved http://www.cloudcontroltrader.com

Page 17