Day Trading & Forex Forum

Tenkan (Signal Line)

The Tenkan line is a signal line that works in conjunction with the trend line (kijun). A crossover above the trend line gives a buy signal and a cross over below the selling line provides a sell signal.  Figure 10 shows a combination of the Tenkan and Kijun lines.

Figure 10. Application of the Ichimoku’s Tenkan and Kijun lines. (click to enlarge)

The formula for the Signal Line (Tenkan) is calculated as follows:

Signal Line (Tenkan) = (highest high+ lowest low)/2 for the past 9 days.

Figure 11 displays three selling signals, which are marked with red downward arrows and one buying signal, which is pointed by a blue rising arrow.  With no exception, the signals to sell and to buy are late relative to the start of the downward and upward moves. Why? For the same reason why crossovers between exponential moving averages on 9 and 12 days, the same periods used in these two Ichimoku lines, would be late to signal the trading points.  You can see a comparison between the crossovers of the Ichimoku’s Tenkan and Kijun lines and the 9 and 26-day exponential moving averages in Figure 10.

Figure 11. A comparison between the crossovers of the Ichimoku’s Tenkan and Kijun lines and the 9 and 12-day exponential moving averages. (click to enlarge)

Chiku (Lagging Line)

The Chiku line, or the lagging line, is very important for the entire Ichimoku outlook.  The lagging line is simply the current close plotted 26 periods behind.

If both the Chiku line and the market are in an uptrend, then this is a buy signal, and vice versa.  Figure 12 adds the Chiku line to the Ichimoku’s Tenkan and Kijun lines.  In this example, the euro/dollar daily prices are falling in sync with the Chiku line and this suggests further weakness for the pair.

Figure 12.   Ichimoku’s Chiku, Tenkan and Kijun lines applied to the euro/dollar daily prices.  This chart suggests further weakness for the pair. (click to enlarge)

In addition, if a selling signal occurs while the lagging line is plotted below the current closing price, then this signal gains more technical strength.  The opposite applies to a bullish market: if a bullish signal is formed while the Chiku line floats above the closing line, then this signal is more important.