Back to Library

Ichimoku Charts: An Introduction to Ichimoku Kinko Clouds

by Nicole Elliott (2007)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

Ichimoku Charts: An Introduction to Ichimoku Kinko Clouds

Executive Summary

Nicole Elliott's Ichimoku Charts is the first English-language book dedicated entirely to the Ichimoku Kinko Hyo charting system, a technical analysis method developed in Japan that combines candlestick charts with a unique system of moving averages to form "clouds" that indicate support, resistance, and trend direction. Published in 2007 by Harriman House, Elliott draws on over 20 years of experience as a technical analyst in the City of London and her time working at Mizuho Corporate Bank, where she learned directly from Japanese practitioners. The book covers the history, construction, interpretation, and advanced application of Cloud charts, including a novel chapter on using Ichimoku analysis for options trading.

Core Thesis

Ichimoku Kinko Hyo provides a comprehensive, visually intuitive charting system that simultaneously reveals trend direction, momentum, support and resistance levels, and potential price targets -- all at a single glance. While widely used in Japanese dealing rooms, the system has been largely unknown in the West. Elliott argues that Cloud charts are particularly valuable for trending markets and that the system's unique combination of timing and price-level analysis makes it superior to many Western technical methods for identifying trade entry and exit points.

Chapter-by-Chapter Summary

Chapter 1: History

Traces the origins of candlestick charting from Edo-period Japan, then explains how a journalist writing under the pseudonym Ichimoku Sanjin spent decades from the 1930s through the 1960s developing the Ichimoku Kinko Hyo system by refining candlestick analysis with a series of specialized moving averages. Covers the cultural context including Japanese calligraphy and the specialized terminology of the system.

Chapter 2: Constructing the Cloud Charts

Provides a detailed technical explanation of how to construct Ichimoku charts, beginning with candlestick foundations. Explains the creation of the five key components: Tenkan-sen (Conversion Line), Kijun-sen (Base Line), Senkou Span A and B (which form the Cloud), and Chikou Span (Lagging Span). Includes specific calculations using daily data and mid-prices, and covers how the Cloud is drawn by projecting moving averages forward in time.

Chapter 3: Interpretation of the Clouds

Explains how to read and interpret Cloud charts in practice, covering support and resistance levels derived from the Cloud, techniques for finessing trading positions, the significance of Cloud thickness, the relationship between price and Cloud distance, and the important caveat that Clouds work best in trending markets. Includes detailed analysis of the Chikou Span as a confirmation tool, with worked examples on the Dax Index and Euro/Dollar pair.

Chapter 4: The Three Principles

An advanced chapter covering the three core analytical principles of Ichimoku analysis. The Wave Principle examines consolidation and wave patterns unique to the Ichimoku framework. Price Targets discusses methods for calculating projected price objectives using N-wave patterns, inverted V-waves, and other formations. The Timespan Principle covers the use of Kihon Suchi (basic numbers) for time-based forecasting, including projecting key dates from significant highs and lows.

Chapter 5: Case Studies

Provides six detailed case studies applying the full Ichimoku methodology to real-world markets: the FTSE100 Index, Short Sterling interest rate futures, CADUSD currency pair, Gold (both weekly and daily), USDYEN, and the Dow Jones Utilities Index. Each study works through interpretation in detail, demonstrating how to synthesize multiple Ichimoku signals.

Chapter 6: Option Trading with Clouds

A unique contribution explaining how Ichimoku analysis is particularly well-suited for options trading due to its ability to simultaneously provide timing signals and price targets. Covers both buying option strategies (where the combination of direction and target enables optimal strike selection) and writing option strategies (where Cloud boundaries help define risk parameters).

Key Concepts

  • Ichimoku Kinko Hyo: Literally "equilibrium chart at a glance," a complete charting system that provides trend direction, momentum, support/resistance, and price targets in a single view.
  • The Cloud (Kumo): Formed by Senkou Spans A and B, the Cloud represents the core area of support or resistance, with its thickness indicating the strength of that support/resistance.
  • Chikou Span: The lagging line plotted 26 periods behind current price, used as a confirmation signal for trading decisions.
  • Three Principles: Wave Principle, Price Target, and Timespan Principle form the advanced analytical framework unique to Ichimoku.
  • Kihon Suchi: Basic numbers (9, 17, 26, 33, 42, etc.) used for time-based projections that are fundamental to the Ichimoku system.

Practical Applications

  • Complete methodology for constructing and reading Ichimoku Cloud charts across any market
  • Framework for identifying support and resistance levels dynamically through Cloud analysis
  • Price target calculation using N-wave and other Ichimoku-specific projection methods
  • Time-based forecasting using the Timespan Principle and Kihon Suchi numbers
  • Application of Ichimoku analysis to options strategy selection, covering both buying and writing strategies
  • Multiple case studies providing templates for real-world market analysis

Critical Assessment

Elliott's book succeeds as a concise, practitioner-oriented introduction to a previously inaccessible Japanese charting method. Her personal experience learning from Japanese colleagues lends authenticity, and the six case studies ground the theory in practical application. The chapter on options trading with Clouds is a genuinely original contribution not found elsewhere. Weaknesses include the relatively brief treatment of each topic given the complexity of the system, and the fact that the book assumes familiarity with candlestick charting. The charts from 2007 are now dated, though the principles remain fully applicable.

Key Quotes

  • "Walk into any Japanese dealing room today and you will see that the most common charts being used are Ichimoku Kinko Clouds."
  • "Sometimes it is pure hard slog: tiring, tedious, repetitive, constant discipline, and my partner has two left feet. Then the other times it's truly fantastic, intuitive, creative, and I have Fred Astaire to lead me round the dance floor."
  • "Clouds are for trending markets."

Conclusion

Ichimoku Charts provides Western traders with their first comprehensive English-language guide to a charting system that has been standard practice in Japanese financial markets for decades. Elliott's practical approach, grounded in real dealing-room experience, makes the system accessible without oversimplifying its nuances. The book is best suited for intermediate technical analysts looking to add a powerful, multi-dimensional analysis tool to their toolkit.