This article will explore the Heiken Ashi technique, its pros and cons, how it is calculated, and more. We’ll also go over how to set it up on a trading platform in great detail. Most importantly, we will examine what trading strategies you can use it for and how to identify the buy and sell signals on a chart.
Third, if there is a long filled (or red) candlestick, it is usually a sign of more selling pressure. Finally, a tiny Heikin candle and that with a long upper and lower shadows is a sign of indecision in the market. If you hope to use the Heiken Ashi technique, you will likely want to use trading software that can create the charts for you. Because of this, memorizing the Heiken Ashi chart formula may not be absolutely necessary. However, knowing the formula can help you understand why this technique is useful. Most market sentiment hotforex broker review readings show that retail traders like to trade against the trend.
But, did you know there are other less popular techniques like the Heikin Ashi which has proven to be one of the best strategies to use to gain a deeper view of the market. Exiting too soon out of fear, missing out on the true potential of a strong trend. Asktraders is a free website that is supported by our advertising partners. As such we may earn a commision when you make a purchase after following a link from our website.
There are typically four main tactics when using Heikin-Ashi candles. This issue does not make them a bad option for candle type; you just need to adjust your strategies for this possibility. Get our latest insights and announcements delivered straight to your inbox with The Real Trader newsletter. You’ll also hear from our trading experts and your favorite TraderTV.Live personalities. At the same time, if it crosses the middle line, it can be interpreted as the start of the reversal. The only risk of this strategy is that a false breakout can happen after the breakout happens.
The Aroon Indicator is designed to measure the strength of a trend and the likelihood that it will continue. This combination allows traders to validate the trends seen on Heikin-Ashi charts, providing a dual-layer confirmation that can enhance trading decisions. Understanding how to pair these tools effectively is key to developing advanced technical analysis skills — you can do that by checking out my guide to the Aroon Indicator. Because Heikin Ashi candlesticks are calculated using averages, the candlesticks have smaller shadows or wicks compared to the regular candlesticks. However, similar to the regular candlesticks, the smaller or shorter the shadow or wick in Heikin Ashi, the stronger the trend.
In this article, our area of concentration includes a practical approach on how to tackle this problem. Also, how to trade the trend using the Heiken Ashi trading method, and a lot more. The current technique is helpful not only to define the trends but the reversals also. There might be several approaches to how it could be done but the most common one is to monitor the change of colors with a combination of the Heiken forex broker listing Ashi candles without wicks. This means that this technique can provide traders with a clearer visual representation of the markets in regards to being able to identify and locate reversals and trends.
The bigger the series of no-tail candles, the stronger the expected trend will be. Trading Leveraged Products like Forex and Derivatives might not be suitable for all investors as they carry a high degree of risk to your capital. With patience, structure, and ongoing refinement, the Heiken Ashi strategy can be a reliable tool for capturing smoother trends and consistent profits in the Forex market. Keep detailed records (trading journal) of your entries, exits, and reasoning—particularly how the Heiken Ashi strategy guided your decisions.
You can use then use it to easily identify the trend and hop into a trade (which I’ll explain more about next). Heiken Ashi’s Close price is an average of the actual O+H+L+C of the current candle. You pretty much get a less noisy chart and look beyond minor pullbacks in a trend that prevents analysis paralysis. Since we are more interested in quantified strategies, we tried backtesting a straightforward strategy and found it works well. While Heikin Ashi charts offer many benefits, they also come with certain limitations that can affect their utility in some trading scenarios. Heikin Ashi charts are particularly effective in identifying breakout opportunities due to their smooth nature.
Due to this, as well as the fact that market noise has been filtered out of the charts, it means that the strategy is a lot more reliable as a result. Traders can therefore stick to the trend with the knowledge that they can trust the signal they are basing their trading decisions upon. First, it provides a smoother representation of price action compared to regular candlesticks, incorporating and smoothing all available data. Once each of these variables has been recognized, you will be able to create a Heiken Ashi chart. Occasionally, some of these values will be equal, which will affect the appearance of the chart as a whole.
The other major advantage of using Heiken Ashi charts is that they improve your risk to reward ratio. A bullish engulfing pattern on a chart of one of my holdings on the regular candle chart looks completely different with the Heiken Ashi chart. It goes from big and green to red with a small body and long upper and lower wicks.
I know, it might sound weird since we’re all used to only see current price data with each candlestick. You can see USDJPY is clearly in an uptrend at this stage as the Heiken Ashi candles are green, with big bodies and little to no lower wicks. This means that a bullish and bearish candlestick is slightly different in Heiken Ashi as well. Because stock indices tend to revert to the mean, we backtest by entering at the close after two red Heikin Ashi candles. Additionally, we use an x-day filter of the ADX (test yourself for different parameters). If you trade on a candle’s opening or closing price, your trade will not be executed at the Heikin-Ashi price.
For those using a platform like MT4, you can download a Heikin Ashi indicator here. If you use Metatrader, you should be familiar with adding an indicator to a chart. Trading with Heiken Ashi double bottom on daily time frame is relatively easy. You should be careful with time frame selection; it is always better to use it with a higher time frame first before applying it to a lower time frame. As far as this is an approach based on price data (Open, High, Low, Close), the importance of the price feed is always underestimated. The broker should provide its customers with quality data without any connection breaks, quote delays, or other bad signs that may affect the quotes.
This aligns with the nature of Heikin Ashi, which aims to smooth price movements and highlight trends. While the win ratio might seem moderate, the strategy’s overall performance metrics, risk-adjusted return, and positive equity growth make it a noteworthy trend-following approach. It’s essential to consider that the strategy, like any trading system, has its strengths and limitations.
This smoothing effect helps identify trends and reduces the impact of short-term volatility, making it easier to spot potential entries and exits in your trades. Another approach of using the Heikin-Ashi is to use technical indicators like the moving averages, Bollinger bands, and the Relative Strength Index (RSI). The idea of using these indicators is similar to how they are used in traditional candlestick patterns. The Heiken Ashi technique is one of the best reversal trading strategies. If you’re confused by the noise generated by the classical candlestick chart, then you should switch over to a Heiken Ashi forex strategy. The three most widely used price settings are the bar chart, candlestick chart, and line chart.
This strategy becomes most powerful using another indicator or group of indicators. The Heikin-Ashi pullback strategy looks to capitalize on brief price retracements within a broader trend. Stop losses on this type of trade are typically beneath the breakout level to minimize risk. Now that we have the basics of what Heikin-Ashi is and how it’s advantageous to use, let’s talk about some strategies you can employ to utilize it.
Our team at Trading Strategy Guides believes that the Samurai code of honor, known as Bushido, meaning warrior, has superior principles that are extrapolated and applied to trading in any market. Like a warrior, you will need to be disciplined and pay close attention to the conditions in front of you. Having your stop loss 1 ATR above the previous swing high gives your trade some space to “breathe”, so you don’t get stopped out of your trade too early. Recall that the closing price of a Heiken Ashi candle is the average of the actual O+H+L+C of the current candle. I want to share with you the Heiken Ashi trading techniques along with examples so you can start to crush your trades.
Properly calibrated settings on the MACD can ifc markets review align perfectly with the smoothed data from Heikin Ashi charts, providing clearer entry and exit signals. This synergy can particularly benefit those looking to enhance their trend-following techniques. To optimize your MACD settings for Heikin Ashi, check out my article on Optimizing MACD Settings. Heiken Ashi helps simplify trend identification by filtering out market noise, allowing traders to follow price movements with greater clarity and less stress. While not perfect, pairing Heiken Ashi with disciplined entries, solid risk management, and smart exits can improve consistency.