Heikin Ashi

Heikin Ashi

The three most traders use charts are candle stick, line chart and bar chart. Heikin Ashi comes next to these charts.

Normal candle-

In normal candle stick the next candle stick is not related to previous candle stick. The same day upper and lower price is shown.

 In heikin ashi it’s a different case here each candle stick is calculated and plotted using some information from previous candle stick. We can read these candle sticks by using size, color, direction of candle sticks which can be adjusted using time frames ( 5 minutes, 15minutes,hourly and daily are most used time frames).Heikin Ashi candle stick is nothing but average bar which shows the new direction and strength of the trend which can help in forecast future trend.

Steps involved for bullish trend-

1. First find the trend using heikin ashi

2. Secondly find the proper support area if you want to buy in     up trend.

3. The first bullish candle should have higher upper shadow.

4. Buy at the next bullish candle

5. Find a proper resistance and support area to gain profit and     to set the stop loss.

 

 

Steps involved for bearish-

1. First find the trend using heikin ashi

2. Find proper resistance area if you want to sell

3. In downtrend the first bearish candle need to have a lower down shadow

4. Buy at the next bearish candle

5. Find a proper resistance and support area to gain profit and to set the stop loss.

To read the candle sticks –

Open Price-

In heikin ashi candle stick the open price will be the average open and close price of previous candle stick.

Calculated as – (previous open+ previous close)/2

Close price-

Average open plus close price plus high, low price of previous candle sticks

Calculated by- (close +open +high +low)/4

 

High price

It will be one among the high open and close price of previous candle stick (whichever candle stick has highest value) -

Low price-

One among the low open, close among previous candle sticks (lowest among all candle stick)

Up candle-

The closing price for and up candle must be above mid-point or prior candle

Down price-

The price should close below midpoint of previous candle

 

In heiken ashi candle stick all next candle will be related to previous candle sticks the open price of each candle stick is calculated using previous candle sticks close and open price

Heikin ashi is slower than normal candles and does not show actual open close price for that day and it gives delayed signal due to which many traders don’t prefer these pattern.

Bullish signal

When big bodies are formed with longer upper shadow (wick) and no or little lower shadow

Bearish signal

When big bodies are formed with longer lower shadow and little or no upper shadow.

Doji candle stick is formed during reversal candle stick which has very small or no bodies and longer upper and longer lower shadow. This pattern is useful when used with support and resistance along with trend line

Always remember trend is your friend.

The most used time frames are 5 minutes 15minutes hourly and daily

 

 

Advantages

1. It eliminates the unnecessary false signal by filtering the noise.

2. easy to identify the strength and direction

3. Will allow to stay in trend for long time

4. Easy to read trends to gain profit

5. Powerful when combined with price action analysis

6. It is best to use at support and resistance level

 

Disadvantage

1. It is more like a lagging indicator

2. Late signals-does not show gaps

3. Not efficient on lower time frames.

4. Closing price of the day is not the actual closing price.

5. Not suitable for short term and scalping

6. Missing out important price data.