Tenkan-Sen (Conversion Line)

What Is a Tenkan-Sen (Conversion Line)?

Tenkan-Sen, or Conversion Line, is the mid-point of the highest and lowest prices of an asset over the last nine periods. The Tenkan-Sen is part of a bigger indicator called the Ichimoku Kinko Hyo, which shows likely support and resistance areas based on various time spans. Ichimoku Kinko Hyo generally means "one look equilibrium chart," and is usually called the Ichimoku Cloud indicator.

The Ichimoku Cloud indicator was developed by Japanese writer Goichi Hosoda and elevated to the public in 1969. The Ichimoku joins a common candlestick chart with five extra lines that measure price movement and volatility. One of those lines is the Tenkan-Sen.

The Formula for the Tenkan-Sen (Conversion Line)

$\begin &\text{Tenkan-Sen(Conversion Line)}: \frac {(9PH + 9PL)}{2}\ &\textbf\ &PH = \text\ &PL = \text\ \end$

The most effective method to Calculate the Tenkan-Sen (Conversion Line)

1. Track down the highest price in the last nine periods.
2. Track down the lowest price in the last nine periods.
3. Add these values together and afterward partition by two.
4. Repeat the cycle as every period closes.

Figuring out the Tenkan-Sen (Conversion Line)

The Tenkan-Sen shows an asset's short-term price momentum. All alone, it shows the mid-point price over the last nine periods. Due to the exceptionally short-term nature of the indicator, it isn't regularly utilized all alone yet rather utilized related to different components of the Ichimoku Cloud indicator.

For instance, on the off chance that the Tenkan-Sen moves over the Kijun-Sen (Base Line), which is the 26-period price midpoint, a few traders view that as a buy signal. On the other hand, on the off chance that the Tenkan-Sen dips under the Kijun-Sen, it could be seen as a sell signal.

These signals are likewise separated by means of the "cloud," a shaded part of the indicator that is utilized to help distinguish the trend. At the point when the price is over the cloud the trend is up, and when the price is below the cloud the trend is down. Assuming the price is moving inside the cloud, that frequently shows choppy trading, or that the trend is currently switching.

Accordingly, when the price is over the cloud, traders might like to buy when the Tenkan-Sen crosses over the Kijun-Sen. They may likewise sell that long position when it crosses back below.

In a downtrend, when the price is below the cloud, traders may short-sell when the Tenkan-Sen crosses below the Kijun-Sen. They may cover the short position when the Tenkan-Sen crosses back over the Kijun-Sen.

The Tenkan-Sen likewise assumes a part in generating Senkou Span A, one of two lines making the "cloud" on the Ichimoku indicator. The edges of the cloud demonstrate support and resistance points, and the thickness of the cloud shows price volatility. As indicated over, the cloud additionally recognizes the trend.

The Tenkan-Sen (Conversion Line) versus a Simple Moving Average (SMA)

The Tenkan-Sen is at times wrongly mistook for a simple moving average (SMA). The Tenkan-Sen is a mid-point, calculated by adding the nine-period high and low and partitioning by two. This is an unexpected calculation in comparison to a SMA, which would include the closing prices from the nine periods and afterward partition the total by nine.

Limitations of Using the Tenkan-Sen (Conversion Line)

The Tenkan-Sen moves closely with the price, so it doesn't give a ton of information all alone, aside from potentially to extremely short-term traders. Along these lines, the Tenkan-Sen is ordinarily utilized related to different lines in the Ichimoku indicator.

Crossover trade signals are now and again utilized between the Tenkan-Sen and the Kijun-Sen. While these crossover trade signals might create high-benefit trades, the strategy is additionally inclined to whipsaws. This is when crossovers happen yet the price neglects to move as anticipated, bringing about additional crossovers and losing trades.

The Tenkan-Sen is the mid-point price of the last nine periods. There isn't anything intrinsically predictive in its calculation. Accordingly, while it might give some understanding and trade signals, traders are all around educated to likewise consolidate different forms concerning analysis, for example, price action and different indicators, into their strategy, instead of depending solely on the Ichimoku indicator and its components.

Highlights

• Senkou Span An is one of the two lines that form the "cloud" or "kumo" for the Ichimoku Cloud indicator.
• The Tenkan-Sen is the quickest moving line that shows up in the Ichimoku Cloud indicator.
• Tenkan-Sen is its own line/indicator, however its value is likewise utilized in the Senkou Span A (Leading Span A) formula.
• The line follows price closely, in this manner it assists highlight with shorting term price course through its slant.