# The cloud and its twist

ICHIMOKU : The CLOUD and its TWIST > Construction & Interprétation

The Cloud is composed of two lines:

• the SSA (midpoint between the Tenkan and the Kijun projected 26 periods in the future) materializes the volatility of the current price action and gives the thickness of the cloud 26 periods forward.

• the SSB (midpoint over the last 52 periods and projected 26 periods ahead) is less reactive given its time space calculation.

The movement of the SSA compared to the inertia of the SSB can lead to the formation of a twist. It is a purely mathematical phenomenon, a reflection of market activity. For example, after a consolidation, prices will trigger a trend and provoke a rise / fall of the SSA, more reactive to price movements. A crossing between SSA and SSB will happen: it's the Twist.

But the twist will only be useful for the analysis when the market will come to this level  26 periods later. It has no predictive power regarding the occurrence of a range. Prices can be range bound following a strong movement which is only to some consolidation (profit taking).

On this first chart below:

- if we take the beginning of the range (vertical dotted red line) and we look 26 periods forward , the twist does not exist> so it can not announce a range.

- if we take a twist and look 26 periods backwards (vertical blue line), it appears that prices start a trend (caused by the movement of the SSA) and therefore at the end of a range .

- which shows the chart above with the twist in progress.

The twist is the consequence of a price movement (red arrows).

the movement 1 was long> prices consolidate at the top before falling = movement 2 . This one is more violent and does not end with a range but a bullish channel of correction until the double resistance Kijun + SSB which has been worked out by prices. Its break means that this movement is not a correction but a resumption of the upward movement initiated in point 1.Then follows a strong breakout of this double resistance = movement 3 which reaches another resistance and operators took their profits off the table = pause in the uptrend. If there is uncertainty about the continuation of the movement, a range could emerge. Otherwise the trend can resume right now by breaking out this new resistance.

To sum up :

The cloud projects the current market in the future by giving  future supports and resistances that will become of interest for the analyst only when prices will be in the same temporal space . The future cloud does not make a prediction for current prices (present).

The twist is a weak or easy passage through which prices can easily pass, materializing a reversal of the trend as prices will be found on the other side of the cloud.

Every analyst/ trader needs first to understand the market action before looking at any indicators. Then he must know how the indicator is built in order to fully grasp the information given.

Each technical indicator has its own utility and it's only a tool to decrypt a market picture. It has no predictable value.

And it is especially true for Ichimoku which is not an indicator but only a tool that pinpoint to the analyst/trader the key points of interest (mainly support/resistance) on which prices could be stopped during their trend progression. Nothing else.

©Karen Péloille - All rights of reproduction, translation and adaptation reserved for all countries.