Heiken Ashi Chart
- 1. What Heiken Ashi indicator shows?
- 2. Setting Heiken Ashi indicator for trading
- 3. How to analyze Heiken Ashi chart?
- 4. An example of Heiken Ashi chart application to binary options trading
- 5. An example of Heiken Ashi chart application to Forex trading
- 6. An example of Heiken Ashi chart application to cryptocurrency trading
- 7. Summary
- 8. Reviews
What Heiken Ashi indicator shows?
Heiken Ashi is a chart for analyzing of an asset price that is used not very often. Heiken Ashi chart is an analogue of Japanese candlesticks – there is a body and a shadow, the body shows the direction and stability of the trend, shadows – the maximums and minimums. Although Heiken Ashi and Japanese candlesticks are analogues, but they are not the same, so the graphics look different in the same situations.
Heiken Ashi chart appeared on the markets recently and its appearance is due to the need to clarify information shown by traditional Japanese candlesticks. A large amount of information displayed by candlesticks often look like «noise» that makes it difficult to determine the trend and predict the behavior of the price. Heiken Ashi was developed in 2004 to solve this problem and was so successful that it was soon included in the list of indicators on many trading platforms.
On the Heiken Ashi chart the open price is an average value between the open price and close price of the previous candlestick. The closing price of the candlestick is formed from average value of the opening price and closing of the minimum and maximum. The maximum of a candlestick is defined as the maximum value of the open and close prices and the maximum value of the previous candlestick. The minimum is formed from the opening, closing and minimum values of the previous candlestick. Heiken Ashi candlestick is formed near the center of the previous candle, so there are no gaps on the chart.
Averaging and connectivity of candlesticks helps to make more distinct the trend according to which the price develops. In the formation of the trend line the candlesticks of the chart almost have not shadows. Heiken Ashi candlesticks change color not so often, as Japanese candlesticks, so trend Heiken Ashi is more reliable.
On Heiken Ashi chart before entering the trading a trend must be confirmed by at least three candles of the same color, which indicate the development of the trend in the same direction. The trend direction is confirmed by the fact that the bodies of candlesticks grow. If the bodies of candles are shortened and the shadows become longer, the trend is close to completion. On the chart a candlestick with a short body and long shadows is a strong reversal signal.
Setting Heiken Ashi indicator for trading
Heiken Ashi indicator is not available on all trading platforms. But, in particular, the library of the MetaTrader 5 (site: https://www.metatrader5.com/en) trading terminal has it. You need to open a trading terminal. Open drop-down menu «Insert». Select the section «Indicators», subsection «Custom Indicators», and from the list select the indicator Heiken Ashi (fig. 2). The indicator is adjusted in the same way as Japanese candles.
How to analyze Heiken Ashi chart?
The analysis of Heiken Ashi is generally the same as the analysis of Japanese candlesticks, there are all elements – channels, trend lines, resistance support, as well as typical patterns are formed on the chart, but they are less than on the chart of Japanese candles.
Traders pay attention to the type of candlesticks formed on the chart: a green (often blue, black) candlestick without a lower shadow shows a confident upward trend (fig. 3); a candlestick with a short body and long shadows on both sides indicates a possible trend change; a red candle also shows a trend change; a red candle without an upper shadow shows a strong downtrend. But separate candlesticks are not a sufficient reason to enter the auction; you should wait for confirmation of the alleged trend: candlesticks of the same or another color.
Typical patterns on the chart include triangles, wedges and dojis. Triangles can be symmetrical, ascending and descending. A symmetrical triangle is formed by converging symmetrical support and resistance levels. This pattern shows instability of price movement of the asset, the trend may reverse or remain the same.
The divergent triangle is formed by symmetrical divergent lines and is also an indicator of an unstable market. The horizontal resistance level and uptrend line form an uptrend triangle. On Heiken Ashi chart this figure suggests that soon there will be a breakdown of the resistance line. The downtrend triangle (fig. 4) is formed by the horizontal support line and resistance level of the downtrend. When there is such figure, traders are waiting for the breakdown of the support level.
Wedges are formed from the extrema of Heiken Ashi candlesticks and are limited to unidirectional support and resistance levels. If the wedge is formed against the trend, then most likely, we can expect a correction. Traders are waiting for level breakout in the direction of the changing trend; this may be the best time to enter the market. Doji is a classic type of Japanese candlestick which is also on Heiken Ashi chart.
Since the opening and closing prices are equal, the candlestick almost has not body, but there are long lower and upper shadows of approximately equal size. The formation of dojis shows that the market is in an unstable state, and you can expect a trend change. Heiken Ashi shows trends more clearly, so it is enough to have one candle opposite to the previous trend to consider options for further actions. However, it is still not enough to start actions. To be more confident in the trend, you should supplement a chart with information from oscillators, for example, stochastics (fig. 5).
Heiken Ashi has all advantages of Japanese candlesticks – they are visual, contain a large amount of information in a concentrated form and they reflect a trend better than Japanese candlesticks, as they cut off unnecessary movements (noise). The disadvantage of the chart is that it takes time to form information, so the chart provides data with a delay. If a trader works with this chart, it is preferable to choose assets with increased volatility, because smoothing nature of the chart can lead to the situation when he does not notice price movements that are significant for trading. For the same reason it is desirable to use additional oscillators when trading with Heiken Ashi.
Therefore, when trading on Heiken Ashi chart, it is advisable to keep Japanese candlestick chart on to see a trend before it appears on Heiken Ashi chart. This will give additional confirmation about validity of the trend to enter the trade. In principle, traders use not only Heiken Ashi in the trading. The main task of this type of the charts is to confirm the trend. Due to its features Heiken Ashi is not very suitable for working on timeframes less than 30 minutes and not suitable for scalping strategy. On Heiken Ashi chart it is optimally to carry out intraday trades with duration of a few hours.
An example of Heiken Ashi chart application to binary options trading
In binary options trading you can use different trading strategies with Heiken Ashi charts that are similar to the strategies of Japanese candles. To do this you need to open the Heiken Ashi chart before, for example, on the service Tradingview (site: https://www.tradingview.com/) with the parameters corresponding to the trading with binary options broker (fig. 6).
One of the popular strategies is to wait for a reversal candlestick after a series of unidirectional candlesticks. The strategy which is based on Heiken Ashi chart can be used not only for binary contracts, but also for other assets. It is carried out on the trading platform. First, you need to select a timeframe, for example, 5 minutes. The trader can see the signal for a trend reversal – an elongation of the candlestick shadow and reduction in the size of the candle bodies confirm this.
At this point traders can purchase Call contracts. If a chart shows a red candlestick with a lengthening body, it can be a signal to buy Put. To be more confident the traders can open two windows with Heiken Ashi on different timeframes – 5 minutes and one minute.
An example of Heiken Ashi chart application to Forex trading
Trading strategies according to Heiken Ashi chart in the Forex market consist in practicing of the graphic figures, such as triangles, flags, «head-and-shoulders» and others. It is considered that the timeframe should be from 30 minutes to 1 hour, in this case an asset should have increased volatility.
When implementing the strategy, it is considered appropriate to use the stochastic oscillator which shows the overbought or oversold of the asset, because Heiken Ashi shows only a trend direction. Stochastic allows you to compensate for the delay when the chart shows the price change. When the candle on the chart changes color (fig. 7) and there will be simultaneously exits from the overbought zones Buy and Sell, it is considered appropriate to enter the trades on the next candle. When the stochastic shows a trend reversal, the trade should be closed.
There are also used simplified strategies, for example, selling at the moment when one candle predicts growth, its body is longer than the previous candle, and after it a similarly directed candle without a shadow is formed. The purchase is carried out in the opposite situation: the last completed candle indicates a downtrend, and the previous one is also downtrend and does not have an upper shadow.
An example of Heiken Ashi chart application to cryptocurrency trading
If you trade cryptocurrencies, Heiken Ashi chart is quite suitable for periods when the volatility of cryptocurrencies is not too high. The chart shows well the upward and downward trends, especially on long, from one day intervals that allow predicting the dynamics of the coin price. Among the strategies that are used by traders working with the chart, is popular, for example, a strategy with moving averages. It is believed that if on the time interval for one day a 10-day moving average crosses a 20-day moving average, you need to buy coins and exit the trade as soon as the candle appears that is opposite to the current trend. But Heiken Ashi chart is unlikely to be on many crypto-exchanges.
So Heiken Ashi chart is a tool useful for trading any assets, mainly in terms of determining the direction of the trend. The use of this chart as an additional tool is optimally when trading with Japanese candlesticks l. If you plan to use Heiken Ashi chart as the main chart for trading, additional oscillators and indicators are needed.