The Ichimoku Cloud is a chart overlay of five lines built from midpoints of past price ranges rather than from average prices. Two of the lines are projected 26 periods forward and the shaded area between them is the cloud, or kumo; a fifth line plots the current close 26 periods back.
The five lines and their formulas
Each line uses the highest high and the lowest low of a lookback window, halved:
- Tenkan-sen (conversion line) = (9-period high + 9-period low) / 2
- Kijun-sen (base line) = (26-period high + 26-period low) / 2
- Senkou Span A = (Tenkan-sen + Kijun-sen) / 2, plotted 26 periods ahead
- Senkou Span B = (52-period high + 52-period low) / 2, plotted 26 periods ahead
- Chikou Span (lagging line) = the current close, plotted 26 periods back
On a daily EUR/USD chart with a 9-day high of 1.0925 and low of 1.0845, Tenkan-sen = 1.0885. With a 26-day high of 1.0980 and low of 1.0800, Kijun-sen = 1.0890. Senkou Span A is then (1.0885 + 1.0890) / 2 = 1.08875. If the 52-day high is 1.1040 and the low 1.0740, Senkou Span B = 1.0890. The two spans are 2.5 pips apart, so the cloud drawn 26 days ahead is very thin at that point.
Note what these figures are not. A midpoint uses two prices out of the whole window — the extremes — and ignores every close in between. A moving average uses all of them and is affected by each; that mechanic is set out in the lesson on moving averages. A range of 1.0800–1.0980 gives a midpoint of 1.0890 whether price spent the month near the top of it or near the bottom.
Why the cloud sits in the future
Senkou Span A and Senkou Span B are calculated from data up to the current bar but drawn 26 periods to the right, so the chart always shows cloud beyond the last candle. That forward section is fully determined by past prices — it is a displaced plot, not a forecast, and it will not change as new bars arrive.
The Chikou Span is the same displacement in reverse, placing today's close against price from 26 periods ago. Crossings of any of these lines are frequently described as trading signals; they are not treated as such here. A line crossing is an arithmetic event, and acting on one produces losing trades as readily as winning ones.
Why the periods do not transfer between timeframes
The values 9, 26 and 52 came from a six-day trading week — roughly one and a half weeks, one month and two months of sessions. Applied to a 5-minute chart, 26 periods is a little over two hours and carries none of that meaning; on a weekly chart it is half a year.
The formula still computes, but the lookbacks correspond to nothing in particular, and the cloud's width changes with the volatility of the timeframe rather than with anything comparable across timeframes.
