Moving Average indicator against the Kijun-Sen line from Ishimoku
Every trader knows that when trading on any strategy that involves trading by trend, without trend indicators. As a rule, most traders use the standard MovingAverage indicator and its various modifications. However, there is a trend indicator, one of the elements of which, is more effective than the moving average. We are talking about the Kijun-Sen line, which is a part of Ishimoku indicator.
What is the Kijun-sen line of the Ishimoku indicator
As you know, Kijun-sen line (Kijun-sen) - the main line of the Ishimoku indicator, showing the direction of the long-term trend. The direction of the Kijun-Sen line is interpreted as the direction of the current long-term trend:
- The line is directed upwards - the market is dominated by the upward trend;
- The line is directed downward - the market is dominated by the downtrend;
- The line is parallel to the time axis - the market is dominated by Flat.
Comparative Analysis of Moving Average and Kijun-Sen Line
For clarity, let's conduct a comparative analysis of the Kijun-Sen line and the moving average.
Since the Kijun-Sen line is calculated based on the data for the last 26 periods, here is a formula that allows you to compare it with the moving average with the same period.
- Kijun-Sen = (Maximum + Minimum)/2 for the last 26 periods
- Moving average = average price for the last 26 periods
By calculating the arithmetic mean between the price maximum and minimum, we end up with an equilibrium indicator that takes into account volatility market. In other words, if the maximum and minimum have not changed, it indicates a market consolidation, and the Kijun-Sen line will be directed horizontally.
On the chart of the currency pair EUR/USD blue circles mark the moments when the price tends to an equilibrium level. After a certain trend is established in the market, the return of the price to the Kijun-sen line can be interpreted as a signal to enter the market.
Moving average with the same period does not take into account the market volatility and price equilibrium, which means that this indicator is less informative.
In turn, the Kijun-sen line of the Ishimoku indicator, which displays the equilibrium price, will change only in case of modifications of the maximum or minimum. This allows quite accurate tracking of price fluctuations. For this reason, many traders use the Kijun-Sen line when placing stop-loss orders.