Tenkan-Sen (Conversion Line)
Candlefocus EditorThe formula for Tenkan-Sen is simple. Take the highest high and the lowest low seen in the past nine days, and find the average of the two. This number is Tenkan-Sen. This is the primary calculation for determining the value of the line, thereby helping to define the trend of the market over the past nine days. The shorter the timeframe, the more likely it is that the line will accurately define trends as they occur.
To better illustrate how wild market swings are taken into account, the Tenkan-Sen can be used to differentiate between a long-term trend and short-term fluctuations in price. For example, let's say a stock has been increasing steadily in price over the past three months. However, it has also experienced spikes in price due to news events or trading activity. The Tenkan-Sen line can help determine whether the long-term trend is growing or plateauing, without being influenced by the daily volatility of the stock.
In addition to helping identify short-term trends, Tenkan-Sen is used in the calculation of Senkou Span A (Leading Span A), one of the two lines that form the "cloud" or "kumo" in the Ichimoku Cloud indicator. Senkou Span A (Leading Span A) is calculated by taking the average of Tenkan-Sen and the Kijun-Sen, which is the equivalent line with a 26-day period. By taking into account the last two levels of price, theSenkou Span A line can help investors better determine where the price may go in the future.
Overall, Tenkan-Sen is an essential component of the Ichimoku Cloud and other technical indicators, providing insight into the market at a level that cannot be provided by the more commonly used longer-term indicators. It is the combination of Tenkan-Sen and Kijun-Sen that make up the core of the Ichimoku Cloud, allowing investors to get a true reading of the overall trend without being distracted by the random fluctuations of the market.