Tenkan-Sen, also known as the conversion line, is the
mid-point between the highest high and lowest low known for the past 9 periods.
It is often compared with 9 period simple moving
averages (SMA). However, both are very
different in their own context. Tenkan-sen measures the average of price’s
extreme high and low known in the last 9 periods, whereas SMA is the average of
the closing price for the last 9 periods.
If the high and low used in the calculation occurred
less than nine days ago, Tenkan-sen remains the same the next day. These
sideway periods make the Tenkan-sen “flattening”, whereas the 9 periods SMA
does not.
The chart below shows the visual comparison
between Tenkan-sen and 9 periods SMA.
USDJPY Daily Chart with Tenkan-Sen Vs SMA
Tenkan-sen, when used on its own, provides an
indication of the current price momentum compares to the prices over the last 9
periods based on how acute the line changes.
When used with reference to the current price period,
Tenkan-sen offers insight to the trader whether the current price is being
supported or resisted by Tenkan-sen.
Often, Tenkan-sen is used for its relation to
Kijun-sen for the near term trend indication. When Tenkan-sen is above the
Kijun-sen, it is bullish. When Tenkan-sen is below Kijun-sen, it is bearish.
USDCAD Daily
Chart
The chart above illustrates the Bullish and
Bearish signals when Tenkan-sen used in connection with Kijun-sen. It also
shows how the current price momentum affects the Tenkan-sen change in angle.
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