Tenkan Sen

The tenkan sen, as we have already mentioned in our Introduction section, is calculated in the following manner:

TENKAN SEN ("turning line")

(HIGHEST HIGH + LOWEST LOW) /2 for the past 9 periods

While many may compare the tenkan sen to a simple 9 period simple moving average (SMA), it is quite different in the sense that it measures the average of price's highest high and lowest low for the last 9 periods. Hosoda believed that using the average of price extremes over a given period of time was a better measure of equilibrium than merely using an average of the closing price. This study of the tenkan sen will provide us with our first foray into the key aspect of equilibrium that is so prevalent in the Ichimoku Kinko Hyo charting system.

Consider the chart in Figure I below:

Figure I - Tenkan Sen vs. 9 Period SMA

As can be seen in the chart, the tenkan sen often exhibits "flattening" whereas the 9 period SMA does not. This is due to the fact that the tenkan sen uses the average of the highest high and lowest low rather than an average of the closing price. Thus, during periods of price ranging, the tenkan sen will clearly show the midpoint of the range via its flat aspect.

When the tenkan sen is flat, it essentially indicates a trendless condition over the last 9 periods.

It can also be seen how the tenkan sen provides a much more accurate level of price support than does the 9 period SMA. With only one exception, price action stayed above the tenkan sen in the three highlighted areas of the chart, while price broke below the SMA numerous times. This is due to the more conservative manner in which the tenkan sen is calculated, which makes it less reactive to small movements in price. On a bearish chart, the tenkan sen will likewise act as a level of resistance.

The angle of the tenkan sen can also give us an idea of the relative momentum of price movements over the last 9 periods. A steeply angled tenkan sen will indicate a nearly vertical price rise over a short period of time or strong momentum, whereas a flatter tenkan sen will indicate lower momentum or no momentum over that same time period.

The tenkan sen and the kijun sen both measure the shorter-term trend. Of the two, the tenkan sen is the "fastest" given that it measures trend over the past 9 periods as opposed to the kijun sen's 26 periods. Thus, given the very short term nature of the tenkan sen, it is not as reliable an indicator of trend as many other components of Ichimoku. Nevertheless, price breaching the tenkan sen can give an early indication of a trend change, though, like all Ichimoku signals, this should be confirmed by the other Ichimoku components before making any trading decision.

One of the primary uses of the tenkan sen is vis-à-vis its relation to the kijun sen. If the tenkan sen is above the kijun sen, then that is a bullish signal. Likewise, if the tenkan sen is below the kijun sen, then that is bearish. The crossover of these two lines is actually a trading signal on its own, at topic that is covered in more detail in our Ichimoku Trading Strategies section.