Ichimoku: Utilizing Tenkan-Sen & Kijun-Sen

Ichimoku: Utilizing Tenkan-Sen & Kijun-Sen

Submitted by adil on Wed, 03/19/2014 - 16:18

The Ichimoku Kinko Hyo indicator comprises of various interlinked components that provide signals on various aspects of a price action that enables a binary option trader to make well-informed decisions.  The trader can choose good points of entry to make sound gains by simply making use of two components alone, Tenkan-Sen and Kijun-Sen. Both these components are moving averages of highs and lows, Kijun-Sen being the lagging component.

This combination of Tenkan-Sen and Kijun-Sen, easily referred to as TK can be used in two different ways. The first instance of their usage involves a simpler and easier perspective. If the Tenkan-Sen line, the blue line as shown in the diagram below stays above the Kijun-Sen line, it represents continuity in an uptrend price action. Similarly, if the Kijun-Sen line stays above the Tenkan-Sen line, it represents continuity in the downtrend.

By carefully plotting these lines over longer and shorter period, the trader can identify continuity in strong trend. If the shorter period lines do not show a wavering trend, the trader can comfortably enter trades in the direction of the trend. In such cases it is advisable that the trader enters binary options trades with smaller durations, that is, 5-15 minutes while keeping an eye out for trend changing signals.

The second instance in which Tenkan-Sen and Kijun-Sen can be used is named as TK cross. Again, this setting is most suitable for those traders who like to trade trends. The TK cross is a situation when Tenkan-Sen and Kijun-Sen lines cross over each other. This essentially means a reversal in the trend and is considered as a powerful indicator for continued trend. If Tenken-Sen crosses below Kijun-Sen, it is a signal to go short on binary option trades. If Kijun-Sen crosses below Tenken-Sen, it is a signal for trader to go long on binary option trades as trend supports an upward price movement.

The trader while following these leads can be sure of making sound profits. However, there are certain additional aspects the trader should consider. Firstly, the trader must make sure that the crossover between these two components of Ichimoku Kinko Hyo is valid. The trader can do this by assessing the angular aspects of these lines. Both lines, Tenkan-Sen and Kijun-Sen must not be flatly oriented. The more angular a crossover is, the stronger is the trend likely to be. Flat oriented crossovers are reminiscent of price getting range bound.

While using TK cross, taking aid from Kumo, another component of the Ichimoku is a good idea. If the price action is above Kumo, the trader has a done deal with long position. If the price action happens to be below the Kumo, then the trader has a done deal with a short position.

Finally, a trader can use MACD histogram to complement the signal given off by these components of Ichimoku. If the histogram shows off blue bars, it represents a bias for long position. Red bars represent bias for a downtrend and a short position. In the diagram below, notice how the MACD histogram stays blue in uptrend, and how it changes to red bars in a downtrend.