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How do you trade Heikin Ashi?
As mentioned in a previous lesson, using a Heikin Ashi chart makes trends easier to identify.
Heikin Ashi allows traders to look for the emergence of new trends or for the reversal of already existing trends.
Here are five basic ways to use Heikin Ashi charts in your trading.
1. Green candlesticks signal an uptrend.
When the Heikin Ashi candle changes from red (bearish) to green (bullish), it’s a sign that the price might be about to turn higher.
If you’re currently in a short position, you may want to exit.
If you’re currently in a long position, you may want to add to your position.
2. Green candlesticks with no lower shadow or wick indicate a strong uptrend.
If you see a lot of green shaved bottoms, you’ll see a strong uptrend.
Stay long and until the Heikin Ashi candlestick changes color, from green to red.
Ride the uptrend as long as no lower shadows appear and let your profits run.
3. Candlesticks with small bodies showing upper and lower shadows indicated a possible trend reversal (or trend pause).
Open a position opposite the current trend since the trend may be coming to an end.
Keep in mind that though that IF the next candlestick changes color, it does NOT always mean the end of a trend, it could just be a pause.
4. Red candlesticks signal a downtrend.
When the Heikin Ashi candle changes from green (bullish) to red (bearish), it’s a sign that the price might be about to turn lower.
If you’re currently in a long position, you may want to exit.
If you’re currently in a short position, you may want to add to your position.
5. Red candlesticks with no upper shadow or wick indicate a strong downtrend.
Notice the amount of red shaved heads? That’s a strong downtrend.
Stay short and until the Heikin Ashi candlestick changes color, from red to green.
Stay short and ride the downtrend as long as no upper shadows appear and let your profits run.
FAQs
Heiken Ashi moving average strategy
- Only buy when HA has turned from red to green within the last few candles and the HA is above the 50-SMA (with space between the HA and SMA) and the SMA is angled upward.
- Heikin Ashi must also be above the 12-period SMA with separation.
- Exit trades when the HA turns from green to red.
There are countless ways to trade financial markets, but many traders favour the Heikin-Ashi indicator as a fundamental part of their technical trading strategies, and for good reason.
Which time frame is best for Heiken Ashi? ›
The Heikin-Ashi indicators can be applied to any time frame – hourly, daily, monthly, etc. Combined with other technical indicators they could form a fuller picture of the direction of an asset price. Heikin-Ashi charts may be used to analyse forex and commodities, as well as stocks and indices.
What is the Heikin Ashi 5 rule? ›
Strong bearish trend = Large black bodies without upper shadows. C2: Here we can observe rule 5. A trend reversal can be suspected with the appearance of small bodies with long upper and lower shadows.
What are the drawbacks of Heikin Ashi? ›
Drawbacks of Heiken-Ashi Charts
Some price data is lost with averaging and, therefore, may not be helpful to all categories of traders, such as scalpers or day traders. Absence of price gaps: Some traders use price gaps to identify price momentum, trigger points or stop losses.
Why not to use Heikin Ashi? ›
Heikin Ashi candlesticks do not show true prices.
While the traditional Japanese candlesticks are derived from the actual prices, Heikin Ashi candlesticks are NOT. Because the Heikin Ashi candlesticks are averaged, they do NOT show the exact open and close prices for a particular time period.
What is the secret of Heikin Ashi? ›
The Heikin-Ashi technique reduces false trading signals in sideways and choppy markets to help traders avoid placing trades during these times. For example, instead of getting two false reversal candles before a trend commences, a trader who uses the Heikin-Ashi technique is likely only to receive the valid signal.
What indicators pair well with Heikin Ashi? ›
Trading is preference-based, so the indicators that work best with Heikin-Ashi are the ones you are most familiar with and practiced with. Moving averages, Bollinger bands, and the Relative Strength Index are examples of indicators that can be used with Heikin-Ashi.
What is the formula for Heiken Ashi? ›
The Formula for the Heikin-Ashi Technique
The formula for calculating Heikin-Ashi candlesticks involves: Heikin-Ashi Close: (Open + High + Low + Close) / 4. Heikin-Ashi Open: (Previous Heikin-Ashi Open + Previous Heikin-Ashi Close) / 2. Heikin-Ashi High: Maximum of the High, Heikin-Ashi Open, or Heikin-Ashi Close.
How accurate is Heikin Ashi? ›
Signal indicators of Heikin-Ashi are normally considered very reliable and are rarely wrong. Hence, traders can ride the trend profitably due to the credibility of the Heikin-Ashi trend signal.
- Timeframe: Renko charts are more suitable for longer-term trend analysis, while Heikin Ashi charts are effective for shorter-term trading strategies. - Risk tolerance: Renko charts may provide a clearer picture of trends but can result in delayed entry or exit points.
What is the best strategy for Heiken Ashi? ›
Heiken Ashi moving average strategy
- Only buy when HA has turned from red to green within the last few candles and the HA is above the 50-SMA (with space between the HA and SMA) and the SMA is angled upward.
- Heikin Ashi must also be above the 12-period SMA with separation.
- Exit trades when the HA turns from green to red.
How to read Heikin Ashi candlesticks
- The top of the upper wick is the highest value on the candle.
- The bottom of the lower wick is the lowest value on the candle.
- The body is the difference between a session's open and close prices.
In the Heikin Ashi Candlestick pattern, the candles with small bodies signal traders about market trend reversals and pauses. A smaller candle opens right after the first candle in a continued trend and either closes above or below, indicating the trend reversal.
Is Heikin Ashi strategy accurate? ›
Heikin-Ashi candlesticks are better deciphered than traditional candlestick charts hence its easier to identify market trends and movements. Reliability: Heikin-Ashi is a very reliable indicator, providing accurate results. It uses historical data, which is also quite dependable.
What is the secret of Heikin Ashi candles? ›
Heikin-Ashi charts typically have more consecutive colored candles, helping traders to identify past price movements easily. The Heikin-Ashi technique reduces false trading signals in sideways and choppy markets to help traders avoid placing trades during these times.
What is the formula for Heikin Ashi strategy? ›
Here's a simplified version of how to calculate the open, close, high and low for Heikin Ashi candlesticks: Open = (open of previous bar + close of previous bar) divided by 2. Close = (open + close + high + low of current bar) divided by 4. High = the maximum value from the high, open, or close of the current period.
What is the Heiken Ashi moving average strategy? ›
The Heiken Ashi (HA) is a trading technique designed to average price data and form a candlestick chart that helps traders filter out the market noise. The result is a better representation of the market trend and the potential price movements.
