Heikin Ashi Trading System

The Heiken Ashi candlestick chart  looks like the real candlestick chart but there’s a difference:

1. in a candlestick chart, each candlestick has four different prices which are: open, high, low & close. Each candlestick that is formed after has not relationship with the one the formed previously.
2. But with heikin ashi candlestick, each candlestick is calculated using some information from the previous candlestick:

If you wan’t to  know more here is a brief detail of how the heikin ashi candlesticks calculated and plotted:

• Open price=average of the open and close of the previous candlestick
• High price=is chosen from the one of the high, open and close price of which has the highest value.
• Low price=is chosen from the one of the high, open and close price which has the lowest value
• Close price=is the average of the open, close, high and low prices.

Which means each candlestick that is formed on the heikin ashi chart is related to the previous one before it-therefore it causes the heikin ashi to delay-just like a moving average indicator.

TRADING USE OF HEIKIN ASHI

Heikin Ashi candlestick charts are used in the same manner as a normal candlesticks.

However there is an additional feature of heikin ashi that makes them different from standard candlestick charts and it is this:

• the colour of the heikin ashi candlestick is supposed to indicate the overall trend direction of the market
• which means it ignores the intermediate trend direction which is happening. In other words, it avoids the noise.

In summary: heikin ashi candlestick chart patterns allow you to stay with the overall trend by allowing your to avoid the noise or the minor fluctuations of price that is prevalent in a standard candlestick chart! 

That’s all there is for you to know about Heikin Ashi Candlestick Charts

 THE HEIKIN ASHI FOREX TRADING SYSTEM

Timeframes: 30m and upwards

Forex Indicators: 9&18 Exponential moving averages (or you can use this combination of ema’s:  7ema & 14ema , 10 ema & 20ema or 10ema & 25ema

Buy Trading Rules:

1. When 9ema crosses 18ema to the upside wait for the price to rally away from the ema lines.
2. After a while, you will see bearish heikin ashi candlestick form and they will come down to touch the 9ema and 18ema lines.
3. The buy signal entry candlestick is the first bullish heikin ashi candlestick that forms after those bearish candlesticks in step2.
4. you can buy immediately at market order.
5. place your stop loss below the low of the entry signal candlestick.

Sell Trading Rules

Its just the exact opposite for buying:

1. when 9ema crosses 18ema to the downside, wait for price to fall down and completely away from the ema lines.
2. after a while you will see bullish heikin ashi candlesticks form and will try to go back up to touch the ema lines. Once this happens, you know a sell trading signal may be just around the corner.
3. The buy sell signal is given by the first bearish heikin ashi candlestick that forms after that those bullish candlesticks in step 2.
4. sell at market order
5. place your stop loss above the high of the entry signal candlesticks.

 TAKE PROFIT TARGETS

1. 3 times what you risked initially
2. or look for a previous high or swing lows point using the the standard candlestick chart  and place your profit target within them.

- See more at: http://swing-trading-strategies.com/heikin-ashi-forex-trading-system/#sthash.4SWg1JiX.dpuf

FIND MARKET TURNING POINTS WITH HEIKEN-ASHI CANDLESTICK ANALYSIS

Trading reversals with Heiken-Ashi charts is a two-step process.

First, find dojis on a Heiken-Ashi chart. We have already done this by marking out the dojis on the Walmart chart above. The dojis highlight areas of possible reversal or continuation where we can find trading opportunities.

Next, refer to the standard candlestick chart and look for reversal candlestick patterns.

(Explore: Candlestick Trading Strategies)

This is the same WMT daily chart. We have circled the candlestick patterns in the “Heiken-Ashi doji zones”.

1. There was a Morning Star candlestick pattern here. It is a bullish three-bar reversal candlestick pattern.
2. After the bullish swing that filled the earlier price gap, Heiken-Ashi dojis coincided with theThree Black Crows pattern. This bearish candlestick pattern led to the down swing which ended with a double bottom.
3. Walmart is filled with stars. In the other two “trading zones”, we found Morning Stars patterns that continued the bullish trend.

This trading approach is not foolproof. Look at the first Morning Star candlestick pattern at the bottom of the chart. The two bars before it formed a Dark Cloud Cover pattern which is bearish. Taking that signal to go short will result in a losing trade.

However, Heiken-Ashi charts are really useful for quickly identifying areas of interest for further candlestick analysis.

LET YOUR PROFITS RUN WITH HEIKEN-ASHI ANALYSIS

Do you have a problem letting your profits run? Do you watch over each trade with your eagle eye? Do you feel stressed by each tick of price change?

If you answered yes to any of the questions, Heiken-Ashi chart is the solution. Let’s take a look at a simple method of exiting with Heiken-Ashi chart. When a Heiken-Ashi bar that goes against our trade appears, we exit.

This chart marks out the exit points for long trades and short trades using this straightforward method. If you had applied the same exit method using a standard candlestick chart, you would have exited with smaller profits.

To avoid the anxiety of watching prices move against you, switch to a Heiken-Ashi chart to monitor your trade. This calm chart below is what you see. Hardly any reason not to let your profits run. Right?

CONCLUSION: POWER OF HEIKEN-ASHI CHARTS

Heiken-Ashi charts are powerful additions to your candlestick trading arsenal.

They point the way to hot “trading zones” for further candlestick analysis.

They help to cut your anxiety as you let profits run.

They do not need any user inputs. No more testing for the ideal moving average look-back period.

What more do you need from this simple Japanese tool?

Okay, just in case you need more. These goodies are for you.

In forex or stock market, we can make or lose money when the price goes up and down. We need to be able to predict the direction of the market. Different traders do this using different methods but for most traders, technical analysis of the price chart is the easiest way. So they spend a lot of time to learn technical analysis.

In fact, technical analysis was invented and introduced by Japanese traders and by the invention of the candlesticks. Those who are familiar with the candlestick chartsknow that it is the best and fastest way to understand the condition of the market and the psychological situation of the buyers and sellers.

Japanese traders didn’t stop improving their technical analysis methods and tools. They worked a lot and tried to make the technical analysis and price prediction easier and faster and Heikin-Ashi chart that came after the candlestick chart is one of the several different achievements of Japanese traders.

You can predict faster using the Heikin-Ashi charts, but they are easier than candlestick charts to understand and trade. In this article, we explain about the Heikin-Ashi charts signals and analysis and will compare it with the candlestick charts and then talk about our opinion about Heikin-Ashi charts and the way that you can use them in your trades.

So What Is a Heikin-Ashi Chart and How Does It Look?

Heikin-Ashi chart looks like the candlestick chart, but the method of calculation and plotting of the candles on the Heikin-Ashi chart is different from the candlestick chart.

If you use MetaTrader you can download the Heikin Ashi and Smoothed Heikin Ashi templates HERE.

In candlestick charts, each candlestick shows four different prices: Open, Close, High and Low price (it is recommended to learn the candlesticks before you go ahead and read this article).

Each candlestick is independent and has no relation with the previous or next candlestick.

But Heikin-Ashi candles are different and each candle is calculated and plotted using some information from the previous candle:

1- Open price: the open price in a Heikin-Ashi candle is the average of the open and close of the previous candle.
2- Close price: the close price in a Heikin-Ashi candle is the average of open, close, high and low prices.
3- High price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the highest value.
4- Low price: the low price in a Heikin-Ashi candle is chosen from one of the low, open and close price of which has the lowest value.

So candles of a Heikin-Ashi chart are related to each other because the open price of each candle should be calculated using the previous candle close and open prices, and also the high and low price of each candle is affected by the previous candle. So a Heikin-Ashi chart is slower than a candlestick chart and its signals are delayed (like when we use moving averages on our chart and trade according to them).

What are the advantages and disadvantages of this delay?

This delay has made the Heikin-Ashi candle as a good indicator for volatile currency pairs like GBP-JPY because it prevents us from rushing and making mistakes and trading against the market.

Lets see how a Heikin-Ashi chart looks like and compare it with a candlestick chart:

The above chart has two parts. The upper part is the Heikin-Ashi chart and the lower part is the candlestick chart. Numbers 1 and 2 in the candlestick chart show a sell signal whereas if you compare the candlesticks number 1 and 2 with the Heikin-Ashi candles number 1 and 2, you will see that the Heikin-Ashi candles don’t show any sell signal yet. It is just the candle number 3 that shows a signal. So Heikin-Ashi candles are about one or two candles delayed.

If we wanted to trade using the above chart and with the candlestick chart signals, we would go short when the candlestick number 3 would break the low price of the candlestick number 2 whereas if we wanted to trade only using the Heikin-Ashi chart, we would have to wait for the candlestick number 4 to be formed.

In other part of the chart, the candlesticks number 5, 6, 7, and 8 made another good sell signal. We would go short when the candlestick number 9 broke the low price of the candlestick number 8. But with the Heikin-Ashi chart, we would have to wait for the candle number 9 to be formed completely and also the next candle to break the low price of the candle number 9.

So the Heikin-Ashi chart is delayed and the candlestick chart is much faster and helps us to make more profit. Why should we use a Heikin-Ashi chart then? As it was already explained, because of the delay that the Heikin-Ashi chart has, it has less number of false signals and prevent us from trading against the market. On the other hand, Heikin-Ashi candles are easier to read because unlike the candlesticks they don’t have too many different patterns.

Different Candles in a Heikin-Ashi Chart:

1- Bullish candles:

When the market is Bullish, Heikin-Ashi candles have big bodies and long upper shadows but no lower shadow. Look at the big uptrend in the below chart. As you see almost all of the candles have big bodies, long upper shadows and no lower shadow.

2- Bearish Candles:

When the market is Bearish, Heikin-Ashi candles have big bodies and long lower shadows but no upper shadow. Look at the big downtrend in the below chart. As you see almost all of the candles have big bodies, long lower shadows and no upper shadow.

3- Reversal Candles:

Reversal candles in the Heikin-Ashi charts look like Doji candlesticks. They have no or very small bodies but long upper and lower shadows. Look at the reversal candles in the below chart:

How Can You Use the Heikin-Ashi Chart in Your Trades?

Some traders only use Heikin-Ashi to trade. It is a good idea specially for those who are not patient and disciplined enough and those who lose because of entering too early and exiting too late. It helps you follow the trending markets, because it keeps you wait for a longer time, and then it lets you in when you are at the beginning of a strong trend.

You can have both of the candlestick and Heikin-Ashi on your chart and add a 14, 7, 3 Stochastic. Buy when both of the Stochastic fast and slow lines go up from the oversold area and at the same time both the candlestick and Heikin-Ashi charts show reversal signals. Sell when both of the Stochastic fast and slow lines go down from the overbought area and at the same time both the candlestick and Heikin-Ashi charts show reversal signals.

Look at the below 2 minutes chart and see two short trade and one long trade opportunities:

Two good trades in the 15 minutes chart:

A good short trade in 5 minutes chart:

A good long trade in the 5 minutes chart:

You can demo trade and see how it works for you.

Heikin-Ashi and MACD:

MACD is a delayed and lagging indicator. All the indicators are lagging, but MACD is even more lagging. Combination of MACD and Heikin-Ashi and confirming the Heikin-Ashi trade setups with MACD, helps you filter out many of the false trade setups and take the best and strongest ones. MACD is great in following the trends. This is the biggest feature of Heikin-Ashi too, however, MACD is a good complement for this feature. Read this article to see how you can use a slower settings of MACD which is 24, 52, and use the MACD bars to follow the trends, and locate the reversals through MACD divergence and convergence: How to Use MACD Indicator?

Indecision candles are candles with little or no body at all. These candles tell us the market cannot make up its mind which direction it wants to go.

Guvernul anticipează un avans economic de 2,5% în 2014, după o expansiune de 3,5% în 2013.

Posted in: Heikin Ashi Trading