The Ichimoku Kinko Hyo system is made up of 5 components
1. Tenkan Sen
2. Kijun Sen
3. Chikou Span
4. Senkou A
5. Senkou B
TENKAN SEN
The first indicator I discuss is the Tenkan Sen. It represents the short term movement for price. The
formula for the Tenkan Sen is:
(Highest High + Lowest Low)
------------------------------------ for 9 Periods
2
Tenkan reflects short-term price movement better. In fact, you can use the Tenkan as a stop once you have entered a trade.
Sentiment
• Bullish: If price is above the Tenkan Sen.
• Bearish: If price is below the Tenkan Sen.
The Tenkan Sen should be pointing in the same direction as the trend. The steeper the angle, the greater the trend. Tenkan Sen is pointing upward with a steep angle, This is showing that the
instrument is in a strong bullish (upward) trend.
If the Tenkan Sen is flat then it indicates that price may consolidate in the short term. If you are in a trade that is open then you should proceed with caution because the short-term trend could reverse soon.
Tenkan Sen is a short term Support/Resistance value. When price crosses the Tenkan Sen it is a major accomplishment because it has broken a major short term Support/Resistance value.
During a trend, if price crosses the Tenkan Sen in in the opposite direction of the trend, it can indicate one of three different scenarios
1. Minor Short Term Pullback
2. Major Short-Term Pullback
3. Countertrend
1. Minor Short Term Pullback
A minor pullback is where price crosses over the Tenkan Sen but never crosses over the Kijun Sen. After it crosses the Tenkan Sen, price then continues on the original path of the trend . This normally happens when short-term traders take profit. The long-term traders continue to hold their current
positions .
2. Major Short-Term Pullback
A major pullback will have price crossing both the Tenkan Sen and Kijun Sen in the opposite direction of the trend. Once it has done that, price eventually continues on the original trend crossing back over both of them again.
In this scenario, long-term position traders are taking some profits. They are not closing out their entire position at all because they believe the instrument will continue the trend after the major pullback has finished.
3. Countertrend
The third scenario is similar to the second scenario. Where price crosses over both the Tenkan Sen and the Kijun Sen. The crossover takes place in the opposite direction of the trend. However, the major trend never resumes. Either the instrument enters a consolidation pattern (sideways) or a new trend forms.
In this scenario, the long-term traders are exiting their positions completely. They can do so over a certain time period or all at once in some cases.
The Tenkan Sen should be close to price. lf price and the Tenkan Sen are close to each other then the trend has been developing slowly without much interference from volatility. If price reverse from the Tenkan Sen then there is a high chance that price will pull back and try to go meet the Tenkan Sen because it was out of equilibrium too much.
