The Tenkan-Kijun Cross Explained

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The Tenkan-Kijun Cross Explained

One of the most often used, and robust systems for the Ichimoku Kinko Hyo is the Tenkan-Kijun Cross Setup, or what I refer to as the TKx setup. It is simple, efficient, and great at picking up trends and trend reversals. It is best for the traders interested in trading trends or momentum type moves.

What are the Tenkan and Kijun Lines?

The Tenkan Line (TL) is also known as the conversion line or turning line. It is similar to a 9SMA but very different in reality. A simple moving average (SMA) flattens out all the data and makes it equal while the TL takes the highest high and the lowest low over the last 9 periods.

Hosada (inventor of the Ichimoku Kinko Hyo) regarded price action and its extremes as more important than the smoothing data given by 9SMA. This is because price action will mark the key highs and lows, but also turning points where they put a lot of money on the line, or essentially key points where traders entered and exited the market.

The chart below shows clearly how the Tenkan Line is quite different from the 9SMA. Since the TL uses price instead of an averaging or closing prices, it is able to mirror price better and represents it further. This is clearly exhibited when the TL smoothens if small portions to move with price and its moments of ranging.

Additionally, we have the angle of the Tenkan Line which can show subtle differences in comparison to moving averages. The sharper the angle, the stronger the trend while the flatter the Tenkan line, the slower the momentum of the move.

However, the Tenkan line is preferred for gauging the momentum of the move as opposed to gauging the trend. But, it can be the first line of defense in a trend; a breaking of the TL in the reverse direction of the move often indicates the weakening of the trend.

The Kijun Line, also known as the datum line or trend line, is intended to show the overall trend for the instrument. The design behind it is the similar to that of the TL using price action and the highest high +lowest low. The only difference is in the periods since the Kijuin Line does it over the last 26 periods.

In essence, the Kijun Line was designed to measure the highest high and the lowest low for the last month of price action. If the Kijun is climbing sharply, then the price has been gaining ground for the last month while if it is flat, then it is the midpoint of the range of price (price equilibrium) for the last month.

Similarly, the angle of the Kijun mirrors the general trend for the instrument. Price breaking the Kijun after being in an up/down trend, generally marks a serious change for that trend, possibly reversal.

Moreover, since it uses a longer period of time to gauge price action, it is a more reliable technique for defining the direction of the trend than the TL. And since the price is akin to this line during a strong trend, it can act as a stop loss for traders already in the correct direction of the trend. Hence, the trend ends when the price breaks or closes below it by a substantial quantity.

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Applications of the Tenkan and Kijun

The most common application of the Tenkan and Kijun lines are the ‘cross’ referred to as the Tenkan-Kijun Cross (TKx). The Ichimoku Cloud uses the TKx the same way a MACD uses a cross of its two lines.

One of the key indicators for Ichimoku traders offered by the TKx is when a trend is about to begin. This occurs via forming a cross where;

-an upward cross means a possible upward trend while a downward cross implies a possible downtrend. A generic upward cross can be used as a generic bullish signal and a generic downward cross can be used as a generic bearish signal.

Goichi Hosada went even further to give another definition of the cross based upon its position in relationship to the cloud.

Weak Cross: It is considered a weak signal if the cross is below the Kumo; since the cross is below resistance.

Medium Cross: It is a medium signal when it happens inside the Kumo; the cross occurs within the field of support/resistance.

Strong Cross: The strongest signal is when the cross occurs above the Kumo for a bullish cross, or a bearish cross below the Kumo. This is because the cross is occurring after the price action has cleared the support or resistance – that being the Kumo.

The vice versa is true for the bearish signals. |

Exhibit A – Tenkan/ Kijun Crosses

See how the USD/INX formed 3 strong downward crosses with each move selling off nicely, and the price action never penetrated the Kumo – emphasizing the downtrend.

In the example below, the AUDUSD gives a nice upward cross in an uptrend already in progress. First, it made a shallow penetration into the Kumo at the beginning of the chart, with the cross resulting in a strong upmove – over 1300pips from the Tenkan/Kijun cross.

In Summary

When trading the TKx, there are various important factors such as time frame, kumo shape/configuration, previous moves-series of crosses, and angle/shape of the cross that need be considered. To learn more about how to trade the Tenkan-Kijun cross in a high probability fashion, make sure to visit the Advanced Ichimoku Course page to get access to proprietary quantitative data, and learn how to trade the Ichimoku using rule based systems discussing daily trade setups.

Trading the Tenkan Kijun Cross

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This is by far the most popular of the trading methods in the Ichimoku Cloud trading arsenal.

It is simple, elegant and great at picking up trends and trend reversals.If you like trading trends or momentum trading, the Tenkan/Kijun cross is a great method to use.

What is the Tenkan?

The Tenkan Line or Tenkan Sen ( Sen means line in Japanese ) is known as the conversion line or turning line is similar to a 9SMA but actually is quite different. An SMA ( simple moving average ) will smooth out all the data and make it equal, but the Tenkan Line will take the highest high and lowest low over the last 9 periods.

The explanation for this is Hosada felt price action and its extremes were more important than smoothing any data. This is because price action represented where buyers/sellers entered and directed the market, thus being more important than averaging or smoothing the data out.

As you can see by the chart below, the Tenkan Line is quite different than a 9SMA. Because the TL ( Tenkan Line ) uses price instead of an averaging or the closing prices, it mirrors price better and is more representative of it. You can see this when the TL flattens in small portions to move with price and its moments of ranging.

Akin to all moving averages, the angle of the Tenkan line is very important as the sharper the angle, the stronger the trend while the flatter the Tenkan, the flatter or lesser the momentum of the move is. However, it is important to not use the Tenkan line as a gauge of the trend but more so the momentum of the move. However, it can act as the first line of defense in a trend and a breaking of it in the opposite direction of the move can often be a sign of the defenses weakening.

The Kijun Line (or Kijun Sen) is known as the datum line, standard line or trend line designed to indicate the overall trend for the instrument or pair. The formula behind it is the same as the Tenkan line using price action and the highest high + lowest low with the only change being in the periods as it does it over the last 26 periods.

Why 26 periods? The answer to that is a matter of history. When the Ichimoku was first created, the Japanese markets were open 6 days a week on Saturdays. If the markets are open 6 days a week, this generally results in 26 trading days for the month – hence 26 periods for the Kijun.

In essence, what it was meant to be was a measure of the highest high + lowest low for the last month of price action. If the Kijun has been climbing – it means price has been gaining ground for the last month. If it is flat, then it will be the midpoint of the range of price for the last month of price action ( or representative of the price equilibrium ).

Also like the Tenkan Line, the angle of the Kijun is reflective of the overall trend in place. Price breaking the Kijun after being in an up/down trend often has serious consequences for that trend and can many times lead to a reversal of sorts. Ultimately because it uses a longer period to measure price action, its a more stable method for determining the direction of the trend than the Tenkan Line.

Because of price to respect this line during a strong trend, it can potentially be used as a stop loss for traders already in the correct direction of the trend. Hence, when price breaks or closes below it by a significant amount, the trend is often over.

Applications for the Tenkan and Kijun

The most common usage of the Tenkan and Kijun are the ‘cross’ or what we call the TKx ( Tenkan-Kijun Cross ). Similar to how a MACD uses a cross of its two lines, the Ichimoku Cloud does the same. It is interesting to note that the Ichimoku uses the same periods as the MACD, however it was created over a decade earlier.

One of the main signals for Ichimoku traders, the TKx can often indicate when a trend is about to begin by forming a cross (upward cross = possible upward trend while downward cross = possible down trend). A generic upward cross can be used as a bullish signal (or exit for people already short) and a generic downward cross can be used as a generic bearish signal (and vice versa for current bulls). However, notice we used the term ‘generic’ meaning there is more to the cross.

Hosada was able to give a further definition to the cross based upon its position to the Kumo or cloud. If the cross was below the Kumo, then it was considered a ‘weak’ signal since the cross was below the Kumo or below resistance. A medium signal was when a cross happened inside the Kumo as it was occurring within the field of support/resistance. A strong signal was when the bullish cross happened above the Kumo as it was happening after clearing resistance. The opposite is true for bearish signals whereby a weak signal is a cross above the Kumo, while a medium signal is inside the Kumo and a strong signal below the Kumo.

One important reminder to all this is to make sure you reference the Chikou Span to see how current price is in relationship to previous price action.

Exhibit A – Tenkan / Kijun Crosses

Take a look at how the USD/INX gave 3 strong downward crosses with each move selling off nicely and never penetrating the Kumo highlighting the downtrend.

In another example, the AUDUSD gives a nice upward cross in an already established uptrend. First it entered the Kumo but had a very shallow penetration leading to a strong upmove over 1300pips from the Tenkan/Kijun cross.

Closing

There are many important factors to consider when trading the Tenkan/Kijun cross such as time frame, kumo shape/configuration, previous moves-series of crosses, angle/shape of the cross, etc.

We have proprietary quantitative data on all pairs for the last 10 years to give you an edge when trading the Tenkan/Kijun cross. To get access to this data, or learn how to trade the Ichimoku on an advanced level, check out the Advanced Ichimoku Course.

The Tenkan-Kijun Cross

Directional Trading With Ichi Moku

Ichi Moku, or Ichi Moku Hiyo Kinko, is an indicator created by a journalist in the 1960’s to help simplify market analysis. At first glance the Ichi Moku clouds are quite intimidating and hard to understand. The good thing is that it is actually a very simple indicator to use and very versatile. As he was not a mathematician and computers were not available as they are today the indicator is based on high and low prices of X periods. In fact, 4 of the 5 plots used to create the clouds and signal lines are based on high and lows. The fifth is based on closing prices. Today I am going to be focusing on only two of the lines, the Tenkan and Kijun lines. These lines are the two “middle” lines drawn on the cloud chart. The beauty of the Ichi Moku is it’s versatility. It can be used to define support and resistance, it is a trend indicator, measures momentum and gives signals. The translation from Japanese gives us some insight into just how useful; the one look equilibrium chart.

This strategy focuses on the Tenkan and Kijun lines in order to find trend following signals. It is used in trending markets and can be applied to any time frame. The recommended time frame is daily but hourly, 30 minute and 15 minute charts can be used with more active assets. The trend is determined by the cloud component of the Ichi Moku, whenever price action is above the cloud the trend is up and whenever it is below the cloud the trend is down. Signals are only taken in line with the trend, which is confirmed by MACD for added accuracy. Expiry is determined by the time frame used but is typically going to be 2-4 candles. For my example I am using the daily charts.

Signals set up is very important to get the best results. First, the cross of the Kijun line by the Tenkan line must be sharp and well defined. Weak crosses, or when the lines are trending together in a sideways fashion are not the best signals but may be a precursor to a much stronger signal. In addition the Kijun line needs to be moving up as well. Again, this is to ensure a strong signal and to help weed out bad trades. The trend component is defined by the cloud. When the price of the asset is above the cloud then only bullish signals are taken, when the price is below then only bearish trades. MACD is used to help confirm trend. MACD must be confirm trend for a strong signal but for the strongest signal MACD must be bullish AND on the rise for a call or bearish AND on the decline for a put.

Advantages Of The Tenkan Kijun Cross

One advantage of this strategy is that it is not only a trend following strategy it is also a momentum strategy. The crosses are trend following signals but are based on increasing market momentum. Look at the chart where I have marked 6 entry points. Over the course of the chart price action is trending above the cloud so the trend is up and only bullish signals are taken. Each signal I have marked follows the cross, is confirmed by MACD and results in a winning trade. The thing to take note of is that most of these are strong signals and can be traded multiple times. Take the February 2020 buy signal. This signal results in a rally that trends higher for 12 days before hitting its peak. Once the first signal is taken additional trades can be made every day with a one to two expiry using a shorter time frame for entry.

Disadvantages Of The Tenkan Kijun Cross

The biggest drawback is that there will not be a lot of signals given, it takes patience to use this strategy. The good news is that signals that are given are usually very strong, and usually come with additional follow up signals. In a strongly trending market any retreat of price to the Tenkan line can be considered a potential entry point. MACD can also be used to confirm these signals as well. Look at the period between the mid-October and the early January buy signals. There are at 12 potential entry points for bullish trades. Using the maximum 4 candle expiry only 2 of them would have failed to profit in a binary trade. Another drawback to this strategy is that the signal is lagging. The very thing that makes the signals so good is also what makes it lag, momentum. The asset must be moving in order for the signal to fire which means that a large portion of the move and a lot of tradable entries are missed.

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