By the end of this video, you will have a solvent understanding of how to better perfect your trades using the Ichimoku cloud. This indicator, while very helpful, is often left unused, but it is very effective and helping you identify the overall direction of price action as well as providing clear confirmation for entry and exit points. As always, the only thing that I asked for in return for this video is that you hit that like button. And also if you see value in this video, subscribe for more short, sweet and simplified videos on how to trade the stock market.

So this indicator has a lot of factors, but I promise it's not that hard to understand. So I'm gonna start by explaining the actual clouds and what they mean. So if the cloud is green means the overall price action is heading upwards and if the cloud is red, that means that the overall price action is pointed downwards. If you're using thinkorswim, the default setting makes the upward cloud elo which is stupid and I recommend changing it to green, but the idea is the same Now if you notice in this situation that price action crossed through the green cloud and then underneath it and that's considered a break of uptrend.

Likewise, the price action breaking through and they above a red cloud as they break of downtrend. So this is very similar to the idea behind support and resistance, but the cloud serves is a very strong barrier between uptrend and downtrend by displaying the overall trend of the price action in play. That way, if the price action crosses the cloud, you know that there has been a break in trend. Now if the stock price enters into the cloud, but that hasn't yet crossed it, that's an early warning sign of a potential break of trend, but it isn't considered a break of trend for purposes of this indicator until it breaks through the entire cloud.

So another reason that this is just like support resistance is that the farther and quicker away it climbs from support, the more room you have to fall and the more likely the stock is overbought. In this situation, we see this massive amount of real estate. Between the cloud and the price action and the more real estate we get between the two, the more likely that the stock is overextended. So we also see this reflected on the RSI.

Now, after the stock corrected itself from being overbought, we saw the price action in the cloud begin to inch closer to each other and then it crossed below the green cloud, which was a sign that this uptrend phase was over. Afterwards, we saw a red cloud form and saw the price action trend below it. Great. So the next thing you need to know is what each of these liens are.

So the blue line is called the Tenkan line and I'm probably messing up the pronunciation, but in trading, the only thing you really need to know how to pronounce this profit. But nonetheless, the blue line is called the Tenkan line. And if you're familiar with Japanese martial arts, tenkan is a move where you spin 180 degrees and kick someone in the face. Now, this indicator basically serves to tell you when you're about to get kicked in the face if you're holding a position as well as when you can kick someone in the face if you want to take a position.

So what I'm talking about is that this indicator gives you a heads up that the stock price is showing signs of making a hundred and eighty degree change in direction and you might be kicked in the face if that direction is downwards and you're holding the position. So if you look at the price action here, we see a break above the Tenkan line, which is a sign of an uptrend. But this increasing real estate between the Tenkan line and the price action shows price strength. Now, when we see the price action, get closer to the tanking line and struggle to stay above it.

That was a sign that pretty soon the price action was likely to run out of steam, and once it broke through here, most of the price climb for that day was actually already over. Now the red line on top is a support and resistance line. It has a Japanese name as well, but I'm not going to make this unnecessarily complicated. So when the price action is below the line and acts as resistance, and when the price action is above the line and access support.

now, the pinkish line is a confirmation line and that serves as an early-warning side if the price action breaks above or below it. It's not something that I pay much attention to because it's a bit too conservative and if you focus on using this for confirmation, you'll likely miss a lot of movement because it's a little bit too conservative as I said. Okay, great, now it's time to hammer in the material of some examples. So the first example I'm going to give you is Crone now Crone Was on bubble watch in our zip trader circle Facebook group and a lot of people are talking about how because of the downtrend last week from its high as the bubble must have already popped.

But the thing is that this correction isn't even enough to quantify it as an actual break of trend since we haven't yet seen it fall through the cloud. From a technical analysis point of view, it has not crossed into downtrend territory quite yet, specifically because it hasn't broken through that phase change of the cloud. Again, this correction isn't even enough to quantify it as an actual break of trend since we haven't yet seen it fall through the cloud. Rather, if we see it using the top line of the cloud as support and it's support holds, that would actually be a very good sign of strength failing to hold would be a sign of a reversal, but that you can't really declare the bubble popped until we actually confirm a change in direction via that break through the cloud.

Of course, if we break through the cloud, we'll see a red cloud slowly form and that would serve as our resistance and it break through. That would then confirm an upward reversal. So at the same time, the price action is trading under the Tenkan line. If we see a bounce off, the cloud will most likely see a gap up and over the ten Kidd line, which would be a good sign of strength as well.

Now if you notice I didn't make any predictions, but rather I Explained what we could learn. I brought about the price action on this chart using the Ichimoku clouds. Okay, next example. So with you set, usually literally just the cloud can give you a huge signal of a break of trend.

Say you're watching for signs of an uptrend and you start seeing this huge gap between the red cloud and that's a huge signal. But the stock is likely trading much lower than it should be unless thus oversold. Of course we see this reflected on the RSI indicator as well. So now you're probably going to wonder like, oh, when do I take a position? Well, the point that you want to take a position is when you become aware of a potential reversal.

And that's when you see this Tenkan line crossover the confirmation line. Now you could take a position here, but that's based on your risk tolerance. Personally, I would wait for the break above the red cloud because when it breaks that red cloud, we know that now we are no longer considered in a downtrend period of the stock and thus were much more likely to continue seeing that that continued appreciation. Now you then hold and watch for signs of a dipping back to the Tenkan line.

In this case, we saw it continue higher and keeping a safe distance, but then showing early signs of breaking said resistance. Now, honestly, in my experience, this is where I feel conflicted because it's at this point where it failed to break resistance that it's also overbought on the RSI. And if you've watched Zip Trader videos before, you know that these are two things that are huge red flags for me. But the problem is that failure to break resistance comes at a time when we see constant momentum on the MACD.

So while a lot of the times I would end up selling here, it's not a good strategy because there's not sufficient evidence of diminishing momentum. Okay, so that being said, I do think this is one of the things that you should adjust as you get more comfort, taking on risk, and more comfortable with the different indicators. But if you're completely new, it's better to be safe and stick with what you know, then to hold and not understand how to react to the price action changes. So in this case you would have made a little bit of profit using the safe strategy.

But in most cases you're going to see more upward potential realized before we actually see this failure to break resistance. anyways. I Hope this video was helpful for you I Know that the Ishi, MOOC and clouds can be very intimidating for a lot of new traders if you know Japanese I'd Love to know if I'm pronouncing this correctly and probably not have a good day folks. and I'll see you in the next video.

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