Kijun Line (Base Line) and Tactics

What is the Kijun Line (Base Line)?

The Kijun Line, also called the Base Line or Kijun-sen, is one of five components that make up the Ichimoku Cloud indicator. The Kijun Line is typically used in conjunction with the Conversion Line (Tenkan-sen) to generate trade signals when they cross. These signals can be further filtered via the other components of the Ichimoku indicator.

The Kijun Line is the mid-point of the high and low price over the last 26 periods.

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The Formula for the Kijun Line (Base Line) is

Kijun line (base line) = 1 2 ∗ ( max { t . . t − 2 6 } [ p ] + min { t . . t − 2 6 } [ p ] ) where: max { t . . t − 2 6 } [ p ] = the maximum price over the last 26 periods min { t . . t − 2 6 } [ p ] = the minimum price over the last 26 periods \begin{aligned} &\text{Kijun line (base line)} = \frac{1}{2}*\left( \max_{\left\{ t .. t-26\right\} } {\left[p\right ]} + \min_{\left\{ t .. t-26\right\}}{\left[p\right ]} \right)\\ &\textbf{where:}\\ &\max_{\left\{ t .. t-26\right\} }{\left[p\right ]} = \text{the maximum price over the last 26 periods}\\ &\min_{\left\{ t .. t-26\right\} }{\left[p\right ]} = \text{the minimum price over the last 26 periods}\\ \end{aligned} Kijun line (base line)=21∗({t..t−26}max[p]+{t..t−26}min[p])where:{t..t−26}max[p]=the maximum price over the last 26 periods{t..t−26}min[p]=the minimum price over the last 26 periods

How to Calculate the Kijun Line (Base Line)

1. Find the highest price over the last 26 periods.
2. Find the lowest price over the last 26 periods.
3. Combine the high and low, then divide by two.
4. Update the calculation after each period ends.

What Does the Kijun Line Tell You?

The Kijun Line, or Base Line, is part of the Ichimoku Cloud indicator.

The Ichimoku Cloud is a technical indicator that defines support and resistance, measures momentum, and provides buy and sell signals. Its developer, Goichi Hosoda, designed the indicator to be a "one look equilibrium chart".

There are several different lines included in the Ichimoku Cloud indicator.

While the "cloud", made up of Leading Span A and B, is the most prominent feature of Ichimoku Cloud indicator, the Kijun Line generates trading signals when it is crossed by the Tenkan Line. The Tenkan Line is the 9-period price mid-point, therefore it moves quicker than the Kinjun line which looks at 26 periods.

When the Tenkan Line crosses above the Kijun Line it signals that the short-term price momentum is moving to the upside, and may be interpreted as a buy signal.

When the Tenkan Line crosses below the Kijun Line it signals momentum has shifted to the downside and may be interpreted as a sell signal.

Buy or sell signals should be used within the context of the other components of the Ichimoku indicator. For example, a trader may only wish to trade the buy signals if the price is also above the "cloud" or Leading Span A.

When the Tenkan Line and Kijun Line are crossing back and forth the price lacks a trend, or is moving in a choppy fashion, and therefore the crossovers will not produce reliable trade signals.

On its own, the Kijun Line can also be used for analyzing price momentum. With the price is above the Kijun line, it means the price is above 26-period mid-point and therefore has an upward bias. If the price is below the Kijun Line, it is below the mid-point price, and therefore has a downward bias.

Example of a Kijun Line

The following chart shows an example of an Ichimoku Cloud indicator applied to the SPDR S&P 500 ETF (SPY).

Image by Sabrina Jiang © Investopedia 2020

In the chart above, the Kijun Line is red and the Tenkan Line is blue. After a brief selloff, the Tenkan moved above the Kijun in early 2016. This was a potential buy signal. The two lines did not cross again until 2018, which would have provided the sell signal. For most of this time, the price stayed above the Kijun Line and the "cloud", helping to confirm the uptrend.

The Difference Between the Kijun Line and a Moving Average

The Kijun Line is a moving mid-point, based on the high and low over a set number of periods. It is calculated by adding the high and low and dividing by two. A moving average (MA) is different. It sums up the closing prices of a set number of periods and then divides that by the number of periods. A 26-period Kijun Line and a 26-period MA will produce different values, and therefore provide traders with different information.

The Limitations of Using the Kijun Line

Unless there is a very strong trend, the Kijun Line will often appear near the price. When the Kijun Line is often intersecting or near the price, it is not as useful for helping to assess the trend direction.

The same goes for crossovers with the Tenkan Line. When the price trends strongly, crossover signals may be quite profitable. Yet many crossovers signals will be unprofitable if the price fails to trend following the crossover.

The Kijun Line is reactionary, in that it shows what price has done in the past. There are no predictive qualities inherent in the indicator's calculation.

The Kijun Line should ideally be used in conjunction with the other elements of the Ichimoku Cloud indicator, along with price action and other technical indicators.