What is the Kijun-Sen (Base Line)?
The Kijun-sen, or base line, is an indicator and important component of the Ichimoku Kinko Hyo method of technical analysis, which is also known as the Ichimoku cloud.
The Kijun-sen is the midpoint price of the last 26-periods, and therefore an indicator of short- to medium-term price momentum. The indicator aids in assessing the trend, and can also be useful for identifying trading opportunities when combined with the other components of the Ichimoku cloud.
- The Kijun-sen also means "base line" and is the mid-point of the 26-period high and low.
- Kijun-sen is typically used in conjunction with Tenkan-sen (conversion line)—the 9-period midpoint price—to generate trade signals when they cross.
- Kijun-sen is not typically used in isolation but rather used in conjunction with the other Ichimoku indicators.
- When the price is above Kijun-sen then short- to medium-term price momentum is up. If the price is below Kijun-sen then price momentum is down.
The Formula for the Kijun-Sen (Base Line) is
Kijun-sen (base line)=21(26-period high+26-period low)
How to Calculate the Kijun-Sen (Base Line)
- Find the highest price reached over the last 26 periods.
- Find the lowest price reached over the last 26 periods.
- Sum these two numbers together and then divide by two.
What Does the Kijun-Sen (Base Line) Tell You?
On its own, Kijun-sen shows the midpoint price for the last 26 periods. Similar to a moving average, when the price is above the base line it indicates the price is above the midpoint and therefore short-term price momentum is up. This is further confirmed if the Kijun-sen line is angled upwards.
When the price is below the base line, and especially if Kijun-sen is angled downwards, that indicates price momentum is to the downside as the price is below the 26-period midpoint.
While 26-periods is typically used for this calculation, this can be altered to suit individual preference. A smaller number of periods, such as 15, will track the price more closely. A larger number of periods, such as 45, will not track the price as closely.
The Kijun-sen is nearly always used alongside the Tenkan-sen (conversion line) to help gauge direction changes in price and to generate trade signals.
Tenkan-sen is the 9-period price midpoint. Since it is a short-term indicator it tracks price more closely and responds quicker to price changes. Therefore, when Tenkan-sen crosses above Kijun-sen it indicates that price momentum is picking up steam to the upside. Some traders use this as a buy signal. This is a bullish crossover.
When Tenkan-sen crosses down through Kijun-sen it indicates the price is dropping, and some traders use this as a sell signal. This is a bearish crossover.
When Tenkan-sen and Kijun-sen are intertwined or crossing back and forth that means the price is lacking a trend or moving in a choppy fashion. Crossover signals are not as reliable during such times.
When gauging the trend or using crossovers, the information provided should be used within the context of the entire Ichimoku cloud indicator. For example, if the price is above the "cloud", a bearish crossover may still be used to sell a long position, but it likely wouldn't be used to enter a short position.
The Difference Between Kijun-sen (Base Line) and a Simple Moving Average (SMA)
The Kijun-sen is a midpoint of the high and low price over the last 26-periods. This is not an average. A simple moving average is an average price over a set number of periods, calculated by adding up the closing prices of those periods and then dividing the total by the number of periods. A 26-period base line and a 26-period SMA will produce different values and thus provide different information to the trader.
The Limitations of Using Kijun-sen (Base Line)
Unless there are is a lot of recent price movement, enough to pull the price away from the 26-period midpoint, the Kijun-sen will often trade near and intersect with the price. At times like these, it is not an ideal tool for helping with trend direction. If the price is crossing the base line repeatedly, the other Ichimoku indicators are needed to provide clarity on the larger or longer-term trend direction.
While some crossover signals with the Tenkan-sen will result in large and profitable price moves, others may not. The price may fail to move as expected or the indicator may cross back the other way, generating a false signal.
While the Kijun-sen does provide some information on its own, it is best used in conjunction with the other Ichimoku indicators. In addition, traders are also encouraged to use price action analysis, other technical tools, and fundamental analysis.