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How do you use Heikin Ashi?
Now that you’ve learned how to calculate Heikin Ashi candlesticks, let’s discuss how to use and read a Heikin Ashi candlestick chart.
The idea behind using a Heikin Ashi chart is that it filters market noise.
And since noise is filtered, you basically see the naked trend.
Because the Heikin Ashi candlesticks are calculated based on averages, the candlesticks will have smaller shadows (wicks) than a regular Japanese candlestick.
Just like with regular Japanese candlesticks, with a Heikin Ashi candlestick, the smaller (or shorter) the shadow (or wick), the stronger the trend.
Green candles with no lower shadow signal a strong UPTREND.
Red candles with no upper shadow signal a strong DOWNTREND.
Heikin Ashi charts are used by technical traders to IDENTIFY:
- Trend DIRECTION
- Trend STRENGTH
So If your goal is to catch trends and ride them as long as possible, then you may want to learn how to use a Heikin Ashi chart.
How to Use Heikin Ashi to Identify Trend Direction
A Heikin Ashi chart shows you the direction of a trend through its color-coded candles.
A green candle is telling you that trend is UP.A red candle is telling you that the trend is DOWN.
How to Use Heikin Ashi to Identify Trend Strength
A Heikin Ashi chart shows you the strength of the trend by observing the shadows (or wicks).
You’ll notice that for many of the green candles, there is no lower shadow or wick.
Vice versa for the red candles. Most do not have any upper shadows or wicks.
These candlesticks do not show a shadow in the OPPOSITEdirection of the trend.
When there is no shadow, this means you’re in a strong trend.
So the main thing you want to look for on a Heikin Ashi chart to determine trend strength is shadowless or wickless candlesticks opposite the trend.
Candlesticks that have no shadow or wick on one end are also called “shaved candles“.
Depending on which end lacks a shadow, there’s a name for each type of shaved candle.
If there is no lower shadow/wick, also known as having “no tail”, the candle is called a “shaved bottom“.
“Shaved butt” would’ve been a better name in our opinion.🤣
If there is no upper shadow/wick, also known as having “no head”, the candle is called a “shaved head“.
Technically, the color of the candle does NOT matter, as long a candle lacks a tail or head, but for the purposes of Heikin Ashi, we want to see shaved bottoms that are green and shaved heads that are red since we’re looking for trend strength.
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.
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.
What is the Heikin-Ashi 5 rule? ›
Rules in Heikin-Ashi
White body sequence = uptrend. Black body sequence = downtrend. Strong bullish trend = Large white bodies and no lower shadows. Strong bearish trend = Large black bodies with no upper shadows. When the trend weakens, small bodies appear with possible upper and / or lower shadows.
What is the best indicator to pair with Heiken 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.
Which time frame is best for Heiken Ashi? ›
Heikin Ashi charts can be used on any timeframe. The calculation is applied to the chosen time frame. Swing traders typically look at hourly, four-hour, or daily charts. The possible strategy discussed above could be applied to stocks, forex, commodities or stock indexes.
What is the secret of Heikin-Ashi? ›
Instead of using the open, high, low, and close like standard candlestick charts, the Heikin-Ashi technique uses a modified formula based on two-period averages. This gives the chart a smoother appearance, making it easier to spots trends and reversals, but also obscures gaps and some price data.
What are the disadvantages of Heiken Ashi? ›
Cons: Lack of detail: Heikin-Ashi charts smooth out the price movements, which can be a disadvantage for traders who want to see the details of each candlestick.
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 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.
Is Heikin-Ashi strategy accurate? ›
Reliability: Heikin-Ashi is a very reliable indicator, providing accurate results. It uses historical data, which is also quite dependable. Filtering of market noise: The indicator filters out market noise and reduces small corrections making the signals more transparent.
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 chart is better Heikin-Ashi or candle? ›
Candles in Heikin-Ashi are much smoother than those in the candlestick chart and also have less noise that helps to detect clearer patterns, as the data represents the average price. Heikin-Ashi charts are easy to read and highlight market trends.
How to master Heiken Ashi? ›
Heikin-Ashi trading strategies
The longer the sequence of candles without wicks, the stronger the trend it signifies. Candles with shorter bodies and longer wicks indicate that traders should be aware of a pause in the trend. The trend could then reverse direction, or it could resume its movement in the same direction.
Which is better Renko or Heiken Ashi? ›
- 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 Heiken Ashi moving average strategy? ›
Heikin-Ashi candles are calculated by taking the average of the open, high, low, and close of the previous period. The open of the Heikin-Ashi candle is the average of the open and close of the previous period. The close is the average of the open, high, low, and close of the current period.
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.
