I’ll ask…
Have you ever found it difficult to trade using Japanese candlestick charts?
There are too many green and red candlesticks on the chart to tell if it’s a buyer or a seller!
That’s why in today’s article…
We want to make your life easier by introducing you to Heiken Ashi candlesticks.
You will learn:
- What is Heikin Ashi Candlesticks?
- Why You Should Start Using Heikin Ashi Candlesticks in Trading
- How not to use Heiken Ashi (and what to do instead)
- Heikin Ashi Trading Techniques to Profit in Bull and Bear Markets
nice?
So let’s start with the basics.
shall we?
What is Heikin Ashi Candlesticks?
Heiken Ashi is a type of candlestick used in technical analysis.
It is very similar to Japanese candlesticks that I have seen.
but!
There are slight differences that you should be aware of.
For Japanese candlesticks…
Each candle is independent of the other and is really just looking at the open, high, low and close prices for that period.
Here’s what I mean:
You can view daily charts, hourly charts, or minute charts.
But each candle is unaffected by other candles!
For Heikin Ashi, each new candle is calculated based on the previous one.
Here’s what I mean:
Heikin Ashi Closing price is the actual O+H+L+C average of the current candle!
among them…
High is the maximum H or O or C value of the current candle.
Low is the lowest L or O or C value of the current candlestick.
The open price is the previous candle’s open price + half of the previous candle’s close price.
This means that bullish and bearish candlesticks are slightly different even in Heiken Ashi.
To summarize things…
A quick explanation of the difference between the two is as follows:
For Japanese candlesticks:
- Bullish candle closes above open
- The bearish candlestick closes below the open
For Heikin Ashi candlesticks:
- A bullish candle closes above the middle of the previous candle
- A bearish candle closes below the middle of the previous candle
Makes sense?
Now that you know the difference between Candlesticks and Heiken Ashi…
Let me tell you the “why” you want to consider trading with Heikin Ashi.
Sounds good?
Then read on!
Why You Should Start Using Heikin Ashi Candlesticks in Trading
If you’re a novice trend trader and can’t identify trends for nuts…
Then the Heiken Ashi candlesticks can help a lot.
Here’s a quick example!
Take a look at this Japanese candlestick chart for USDJPY.
Let’s compare this to the same USDJPY Heikin Ashi chart.
tell me now…
Which one can you spot the trend at a glance?
No more guessing again…
If you look at the average bar chart of USDJPY, it will be obvious!
Still not convinced?
Now let’s give some more examples of how these work in multiple trading conditions…
uptrend
You can see the uptrend marked by these green candles below.
- big body
- No lower core
- Often long top core
downward trend
Here you can see a small pullback or downtrend. For red candles:
- big body
- No top core
- usually have a longer lower core
reversal
So how do you communicate that the market is about to reverse?
Look at these candles:
- Super long top and bottom core
- but the body is so small
They look exactly like the same symbolic reversal candlesticks.
It’s really that easy, right?
You get a chart with less noise and beyond minor pullbacks in the trend to prevent analysis paralysis.
In other words, Heiken Ashi can be used as a market trend filter to decide whether to go long or short.
But like all other tools and concepts, it’s not the Holy Grail.
There are pros and cons.
Now that I’ve shared what Hirakentoku can do, I’ll share with you what it can’t do.
strange?
Let’s move on…
How not to use Heiken Ashi (and what to do instead)
recall…
Heiken Ashi’s closing price is the actual O+H+L+C average of the current candlestick.
Its open price is the previous candle’s open price + half of the previous candle’s close price.
This is a scalper on a 1 minute timeframe…
I don’t want to use Heikin Ashi candlesticks.
why?
This is because opening and closing prices are calculated based on the average price, which takes time to form.
So you can never make quick scalping decisions!
If you’re a scalper who needs the latest prices…
It is best to stick to Japanese candlesticks.
So, to maximize the potential of Heiken Ashi candlesticks, do this instead…
Trade using Heiken Ashi on higher timeframes such as timeframes.
You can use it to easily spot trends and dive into trades (more on that next).
Moving on…
Heikin Ashi Trading Techniques for Trading with Trends in Bull and Bear Markets
In this section…
I would like to share Heikenashi trading techniques and examples to help you crush your trades.
Even a novice trader!
Let’s get down to business…
How to use Heikin Ashi for bullish trend continuation
There are four parts to this bullish trend continuation technique.
- Use Heikin Ashi candles to identify trends on higher timeframes
- Use the 20 & 50 EMA on the lower timeframes and wait for a pullback to value territory
- Go long with a valid entry trigger
- Stop Loss 1 ATR below the recent swing low to take profit before the previous swing high
Please let me explain…
First… Use Heikin Ashi candles to identify trends on higher timeframes.
on the right…
The Heikin Ashi candle is green, has a large body, and little or no bottom wick, so you can see a clear uptrend for USDJPY at this stage.
However, the price has moved quite a bit and I don’t want to jump in right away in case there is a big collapse against you.
So what you want to do is this…
Then use the 20 & 50 EMA on the lower timeframes and wait for a pullback to value territory.
at this point…
The price has pulled back within the EMA and is just above the 50 EMA.
This is when the market is “on a break” and the area between the 20 EMA and 50 EMA serves as a worthwhile area to start looking for entry triggers.
Third, long a valid entry trigger.
The entry trigger will be a large, green candlestick with little to no wick after the price bounces off the 50 EMA.
When you see the shape of this candle, long the next candle.
Why is a large green candle a good entry trigger?
Recall that the closing price of a Heikin Ashi candle is the average of the actual O+H+L+C of the current candle.
Despite being an average (which may be affected by the day’s highs and lows), it is still above the previous Heiken Ashi candle high.
This can act as a valid entry trigger for a bullish trend continuation as it implies that there is momentum behind the move.
And finally, take a stop loss 1 ATR below the recent swing low and take profit before the previous swing high.
The stop loss is only 1 ATR below the most recent swing low (below the 50 EMA).
If you want to know more about stop loss hunting secrets, read here. videoWe won’t go into too much detail here.
We also need to take profit before the previous high swing.
If you are just starting out with this simple trend continuation technique, don’t get too greedy with your profit target.
Next…
How to use Heikin Ashi for bearish trend continuation
In the case of a bearish trend continuation, it is simply the opposite.
- Use Heikin Ashi candles to identify trends on higher timeframes
- Use the 20 & 50 EMA on the lower timeframes and wait for a pullback to value territory
- Short with a valid entry trigger
- Beat the recent swing high with a stop loss of 1 ATR to take profit before the previous swing low
First, use Heikin Ashi candles to identify trends on higher timeframes.
Using just the Heikin Ashi candle on the daily chart, we can see that the price is currently bearish with a large red body candle with little to no top wick.
Next…
Then use the 20 & 50 EMA on the lower timeframes and wait for a pullback to value territory.
We want the price to enter the range of values within the 20 EMA and 50 EMA.
We can see that the doji is forming even within the 20 EMA and 50 EMA.
This means that the short-term bullish candle has lost momentum and the market is about to turn bearish.
Third, short the active entry trigger.
This latest red Heiken Ashi candle has no top wick, a longer body and a significantly lower close than the previous candle.
It will run out at the start of the next candle.
And finally, set a stop loss 1 ATR above the recent swing high and take profit before the previous swing low.
Having your stop loss 1 ATR higher than your previous swing high gives your trades space to ‘breathe’.
Then you can take profit before the previous swing low.
but…
The market is likely to reverse completely without even touching the swing, so you don’t want to set your profit target too low beyond the swing.
Makes sense?
So that’s it!
Here’s how to trade Heikin Ashi in different market scenarios!
So let’s quickly recap what we learned today.
shall we?
Conclusion
To summarize everything in this training guide…
Here’s what I learned today:
- OHLC prices for Heiken Ashi candlesticks are calculated differently than Japanese candlesticks
- Use Heikin Ashi candlesticks as a trend filter to determine when to be a buyer or seller
- Do not use Heiken Ashi for scalping as it takes time for the candle to form and it is not the exact opening or closing price of the period.
- Heikin Ashi trend continuation technique to profit in both bull and bear markets
to you now…
Have you used Heiken Ashi in trading before?
If not, why not try Heikin Ashi in trading?
Let us know in the comments below!