What Is a Tenkan-Sen (Conversion Line)?
Let me explain what the Tenkan-Sen, or Conversion Line, really is—it's simply the midpoint of the highest and lowest prices of an asset over the last nine periods. This line is a core part of the Ichimoku Kinko Hyo indicator, which helps you spot potential support and resistance areas across different timeframes. The name Ichimoku Kinko Hyo translates roughly to 'one look equilibrium chart,' and it's often just called the Ichimoku Cloud indicator.
This indicator was created by Japanese journalist Goichi Hosoda and released to the public in 1969. It overlays a standard candlestick chart with five additional lines that track price movement and volatility, and the Tenkan-Sen is one of them.
Key Takeaways
- The Tenkan-Sen is the fastest moving line in the Ichimoku Cloud indicator.
- The line follows price closely, therefore it helps highlight short-term price direction via its slope.
- Tenkan-Sen is its own line/indicator, but its value is also used in the Senkou Span A (Leading Span A) formula.
- Senkou Span A is one of the two lines that form the 'cloud' or 'kumo' for the Ichimoku Cloud indicator.
The Formula for the Tenkan-Sen (Conversion Line)
Here's the straightforward formula you need: Tenkan-Sen (Conversion Line) = (9-period high + 9-period low) / 2. That's it—PH stands for the period high, and PL for the period low.
How to Calculate the Tenkan-Sen (Conversion Line)
- Find the highest price in the last nine periods.
- Find the lowest price in the last nine periods.
- Add these values together and then divide by two.
- Repeat the process as each period ends.
Understanding the Tenkan-Sen (Conversion Line)
You should understand that the Tenkan-Sen reveals an asset's short-term price momentum. By itself, it just gives you the midpoint price over those last nine periods. Given its short-term focus, I don't recommend using it alone—instead, pair it with the other parts of the Ichimoku Cloud indicator.
For instance, if the Tenkan-Sen rises above the Kijun-Sen—which is the 26-period price midpoint—some traders see that as a buy signal. On the flip side, if it falls below the Kijun-Sen, it could signal a sell.
These signals get filtered through the 'cloud,' that colored area on the chart that helps you identify the trend. When the price is above the cloud, the trend is up; below it, the trend is down. If the price is inside the cloud, expect choppy trading or a potential reversal.
So, when the price is above the cloud, you might buy on a Tenkan-Sen crossover above the Kijun-Sen and sell when it crosses back below. In a downtrend below the cloud, short-sell on a downward crossover and cover when it crosses back up.
The Tenkan-Sen also factors into Senkou Span A, one of the lines that create the cloud. The cloud's edges show support and resistance, its thickness indicates volatility, and as I mentioned, it helps spot the overall trend.
The Tenkan-Sen (Conversion Line) vs. a Simple Moving Average (SMA)
Don't confuse the Tenkan-Sen with a simple moving average (SMA), even though some people do. The Tenkan-Sen is a midpoint from adding the nine-period high and low and dividing by two. An SMA, however, adds up the closing prices over nine periods and divides by nine—completely different calculation.
Limitations of Using the Tenkan-Sen (Conversion Line)
The Tenkan-Sen sticks close to the price, so on its own, it doesn't offer much insight except maybe for very short-term traders. That's why you typically use it with the other Ichimoku lines.
Crossover signals between the Tenkan-Sen and Kijun-Sen can lead to profitable trades, but they're prone to whipsaws—false signals where crossovers happen but the price doesn't follow through, leading to losses.
Remember, the Tenkan-Sen is just the midpoint of the last nine periods; there's no built-in prediction in it. It can provide some insights and signals, but I advise you to incorporate price action and other indicators into your strategy rather than relying solely on the Ichimoku elements.
Other articles for you
This text provides a comprehensive overview of the accounting profession, including definitions, history, duties, ethics, salaries, and certification processes.
Non-member banks are state-chartered institutions not part of the Federal Reserve System but still subject to certain requirements and able to access its services.
This article explains crude oil as a vital commodity, its extraction, refinement, investment strategies, price prediction methods, and key market resources.
A 100% equities strategy allocates all investable cash solely to stocks, excluding other asset classes like bonds or derivatives.
Owner financing is a real estate arrangement where the seller directly finances the buyer's purchase, offering advantages and risks for both parties.
A whole loan is a single loan issued to a borrower that lenders often sell in the secondary market to reduce risk and recoup principal quickly.
Identity theft involves unauthorized use of personal information for fraud, with various types, prevention methods, and recovery steps outlined.
Market segmentation theory explains that short-term and long-term interest rates operate independently in separate markets.
Liquidated damages are pre-specified sums in contracts to compensate for hard-to-quantify losses from breaches.
Household income is the combined gross earnings of all members in a household, varying by context for purposes like taxes, benefits, and economic analysis.