"Clouds" are dynamic time zones that reflect the market volatility over a specific period by averaging movements using a proprietary formula. The parameters controlling these zones can be easily adjusted in the settings panel. Their main function is to identify the dominant trend and designate areas where trading is discouraged, known as "no trade zone".
Clouds can be interpreted as a shadow, market blocks that are defined by the effect over time averaged by the momentum of the trend. This allows us to effectively and intuitively understand the structure of the price chart.
The concept of "clouds" includes three key elements: upper range, lower range, and inner NTZ (No Trade Zone) area, which is usually around 50% of the distance between the upper and lower range. When the cloud narrows its range, it can be predicted that the price will exceed its boundaries, establishing a new level or testing a previous one. For experienced market analysts, clouds are a key indicator of trend continuation and are a significant element in shaping long-term trading strategies.
In the attached example, we can observe the combination of VSA and Clouds to identify the beginning of an upward momentum, after treating the Cloud as support we notice an increased effort from the buyers. The candles in this trend (yellow path) close above the cloud which informs us about strong upward momentum. After reaching a local peak, the first deeper correction engages the inside of the cloud - such a situation requires us to use the lower time axis if we need to determine whether the consolidation will be used to extend the trend, and the violation of the Cloud itself only hints that during the stay inside the Cloud we must focus on the price in terms of consolidation or conduct a corrective analysis on a lower time axis to get more details...
After a successful defense of the Cloud as support and further continuation of momentum (red path) the momentum was lost, causing the price to enter the no trade zone where we can define the premium and discount zones.
When we find ourselves in an NTZ (no trade zone) situation, we are forced to wait for the price to exit from inside the Cloud. In the attached example, after a false breakout upwards, the bottom of the Cloud acts as a "Break of Structure" and causes a strong downward impulse because the arrangement of the Cloud from the past, specifically the "Cloud Flip" informs us about how big an imbalance was left in this move to fill.