Trading with the cloud (or kumo) should be pretty straight forward as the majority of traders use the cloud as major support and resistance area for price. There are different strategies to be used and we will cover the most important ones in the second part of this project that is dedicated to that subject.
What is important to be remembered now are the following:
- the cloud color: green signals bullish conditions while red signals bearish conditions; this should be considered both for current and projected cloud levels;
- the cloud/price relation: when price is inside the cloud and the cloud is green, then the upper side of the cloud (so called the top of the cloud) should offer resistance; when price is inside the cloud and the cloud is red, then the lower side of the cloud (so called the base of the cloud) should offer support;
- the higher the time frame used, the stronger and most powerful the interpretation should be.
The recording that comes with this sub chapter shows how the cloud is used in relation with current price, Chinkou, and what to make out of the projected cloud.