While trading the financial markets, you might have probably used several tools and charts to predict the best time to trade.
Because of the high volatility in the financial markets, it has become important to use these advanced trading tools and charts to maximize the profit chances while also lowering the potential loss chances.
In this series, Heikin Ashi Candles is one such advanced charting tool that allows traders to spot market trends and predict future price movements.
As with other traditional candlestick charts, using the Heikin Ashi Candlesticks requires good knowledge and understanding of its fundamentals.
So, if you’re too want to get detailed information about Heikin Ashi candles and how they work? Then, continue reading this guide till the end.
What Are Heikin Ashi Candles?
The Heikin-Ashi Candles is a Japanese candlestick-based technical tool that employs candlestick charts to show market price data.
In Japanese, Heikin refers to average, and Ashi refers to pace. Together, it means the average pace of security prices.
This chart uses as a type of technical analysis that examines an asset’s price fluctuations in relation to a larger trend.
For instance, you can make a better and more informed decision about whether to enter or exit a trade if you can see the overall trend more clearly.
Heikin Ashi candles will show four separate price levels (lowest point, highest point, open and close prices), but their values will be derived from data from the current and prior sessions.
Meanwhile, Heikin Ashi candlestick can be applied to the same time values as standard candlestick charts, making them helpful for scalping, day trading, and position trading.
What Is The Formula To Calculate Heikin Ashi Candles?
The Heikin Ashi formula allows you to calculate each candlestick chart on the charts. However, this chart’s calculations are quite complex in comparison to other standard candlesticks.
Here’s a simplified formula to calculate the Heikin Ashi candlestick chart:
- Open position = (Previous bar’s open + close of the previous bar) / 2
- Close Position = (Current bar’s high + Low + Open + Close) / 4
- High = The current period’s maximum value from the high, open, or close.
- Low = The current period’s minimum value from the high, open, or close.
Construction of Heikin-Ashi Candlesticks:
The Heikin-Ashi chart is built similarly to a standard candlestick chart, with the exception that the method for calculating each bar is different.
The user defines the time series, which can be daily, hourly, or five-minute intervals, depending on the style of chart needed.
The full candles indicate the low days, while the empty candles reflect the happy days. The charting platform may also color these in. For instance, up days are white or green, and down days are red or black.
How To Read Heikin Ashi Charts?
The best part of using Heikin Ashi charts is that they can be used in any financial market, whether it’s Forex or Stocks.
There are five primary signals in Heikin Ashi Chart that identify buying opportunities and current market trends.
So, let us tell you how to read Heikin Ashi Chart with the help of a chart example:
Here’s how you can read the Heikin Ashi charts with the help of the above chart example:
- The candle’s high is at the top of the upper wick.
- The bottom of the lower wick is the candle’s low.
- The body is the difference between the open and closing prices of a session.
- If the candle is green, it means the closing value is greater than the opening value.
- If the candle is red, then it represents the closing value is lower than the opening value.
- Green candles with no lower “shadows” represent a strong uptrend.
- An uptrend is indicated by hollow or green candles, which help you decide entry and exit points.
- Candles with tiny bodies surrounded by upper and lower shadows represent a trend shift.
- If you see filled or red candles, it’s time to add to your short position and leave your long position.
- A strong downtrend is indicated by filled or red candles with no higher shadows: In this, traders should keep it short until the trend shifts.
These chart patterns may make it easier for traders to find trends and best trading opportunities compared to traditional candlestick charts.
What Are Heikin Ashi Candle Indicator Signals?
These Heikin Ashi charts show the ongoing trends in the market through indicator signals. There are two major types of Heikin Ashi indicator signals: Trend Strength and Trend Reversal.
The first step is to assess the trend’s strength. Due to the smoothing effect of the indicator, small corrections may not be evident on the chart.
As a result, while using the Heikin-Ashi chart to trade in the trend, it is recommended to apply a trailing stop to increase the benefits of trading within the trend.
If the trend is strong, it is advised that a trader continues in it to profit from it. The trends for Heikin-Ashi are further divided into three types: Bullish or bearish trends and Triangles.
Bullish Trend: The appearance of a large number of successive green candlesticks without lower shadows indicates a strong signal.
Bearish Trend: The appearance of a lot of successive red candlesticks without upper wicks indicates a significant downtrend signal.
Triangles: The uptrend will emerge when the indicator breaks above the upper of a symmetrical or ascending triangle.
This indicator signal helps traders in determining the best time to exit the existing trend-following trade and enter the new trend.
By using the trend reversal indicators, traders can mitigate the high loss chances by entering a new trade. There are two types of Trend reversal indicator signals:
Doji Candlestick: It shows the short body with a long shadow. It represents the market uncertainties. In the Heikin Ashi technique, it represents a trend reversal.
Wedges: The wedges are just like triangles. The rising wedge tells traders to wait till the candlestick goes below the indicator’s bottom line.
Meanwhile, a falling wedge refers to waiting till the candlestick break above the indicator’s upper line.
What Are The Advantages of Heikin Ashi Candles?
There are numerous benefits of using the Heikin Ashi candles while trading financial instruments.
Here are some major advantages of Heikin Ashi Candles:
The traders often prefer to choose charts with high readability. In this series, Heikin-Ashi candlesticks are more easily understandable and readable than traditional candlesticks charts.
Heikin Ashi chart is the most reliable and accurate charting tool. This is because it uses historical price data to predict future trends. Meanwhile, this historical data is highly dependable.
Heikin Ashi chart is one of the most accessible charting tools that doesn’t need to be installed. Additionally, it is available on all major trading platforms such as InvestBy.
Filters Market Noise:
The concept behind using a Heikin Ashi chart for trading is that it filters market noise. And when the noise is filtered, you see the naked trend and trade even more efficiently.
Tolerant To Any Timeframe:
The best part of using the Heikin Ashi charts is that it is tolerant to any timeframe from hourly, monthly, daily, etc. However, large timeframes are always reliable and better.
Tips To Trade With Heikin Ashi Candles Chart:
Heikin Ashi charts are really very powerful when used in conjunction with price action analysis.
Here are some important tips for trading with Heikin Ashi Charts:
- Always search for support and resistance levels and note down important swing points as they could work as future turning points.
- Before deciding on an entry point, it is important to use a stop-loss order.
- Wait until the price action goes into a potential trend reversal.
- Remember, a big opposite candle may show a shift in sentiments.
- Look out for the new trends to emerge or for the reversal of already existing ones.
The Bottom Line:
Heikin Ashi Candlesticks are a powerful tool that chartists may use to filter noise, predict reversals, and identify classic chart patterns.
On the other hand, these charts can be used to apply all aspects of traditional technical analysis.
Chartists use these charts to define support and resistance, create trend lines, and quantify retracements.
As now you may have fully understood the Heikin Ashi Candlesticks, it’s time to put your practical knowledge to work. So, start trading with Heikin Ashi Candlestick by just opening a trading account with InvestBy today!
Are Heikin Ashi Candles Good For Day Trading?
Yes, these HA candle charts are quite useful for all short-term trading strategies, including Day trading, Scalping, or even Swing trading.
Are Heikin Ashi Candles Accurate?
These candle charts are quite easily understandable in comparison to other traditional charts. Meanwhile, it is the most accurate and can easily identify trends and price movements.
What Indicators Are Best With HA Candle Charts?
There are several indicators that work well with Heinkin Ashi, including moving averages, Bollinger bands, and the Relative Strength Index (RSI).
Is Heikin Ashi Profitable?
Heikin Ashi candles can be profitable but for long-term trends. For the trend-following strategy, these candle charts produce a considerable win percentage.
How Are Heikin-Ashi Candles Formed?
These charts are formed by combining the midpoint of the previous bar with the high, low, open, and close of the current bar.