About Heikin Ashi Technique

The Heikin-Ashi technique is a trading tool that represents and visualises Market price data using Candlestick charts. It is a Japanese based trading tool used to detect market trends and predict price fluctuations. This strategy works by using average price data to filter out market noise.

Traders can use the trading strategy to figure out when to hold on to a transaction, when to stop trading, and when a reversal is coming. As a result, traders may have to modify their positions.

Heikin Ashi Formula

• Close is calculated as the average of the current bar’s open, close, high and low values
• The average of the previous bar's Heiken Ashi open and Heiken Ashi close is used to determine the open.
• The greatest of the current bar's high, the current Heiken Ashi open, and the current Heiken Ashi close is high.
• The current bar's low, the current Heiken Ashi open, and the current Heiken Ashi close is used to calculate the low.

Heikin Ashi Tactics

To maximise the chances of traders profit or margin, here are a few strategies traders can use while trading:

• The absence of shadows on candlesticks is a significant indicator that a big bullish trend is about to begin. This method is one of the best Heiken-Ashi strategies because of its track record and high success rate. The longer the run of candlesticks without tails, the greater the expected trend. Traders could also expect a new stable downward negative trend to continue if they find candlesticks with no upper shadows.

• The strong bullish or bearish trend is the most prevalent Heikin-Ashi approach, which aims to detect the start of a significant uptrend or negative one. If a favourable trend starts, traders with short positions should exit, while those with long positions should increase and consolidate their positions.

• Indication of candles with small bodies is something to be taken care of. When a trend is going to halt or reverse, these candles are used to notify it. As a result, traders respond to the trend ending by initiating new positions. Traders should proceed with care since the trend might be stagnating rather than reversing. In that circumstance, the trader must utilise expertise to assess whether a trend reversal is imminent or simply a trend halt.

Heikin Ashi Charts Vs. Renko Charts

Based on the averages of two periods, Heikin-Ashi charts are created. Renko charts, on the other hand, are made by simply displaying small fluctuations.

While there is a time axis on a Renko chart, the boxes or bricks are only determined by movement, not by time. A new Heikin Ashi candle will form every period, but a new brick/box will only appear on a Renko chart once the price has moved a particular amount.

Heikin Ashi Benefits

To be a wise trader, you must check on the tool and know if the tool is worth the investment of time and effort to learn. So here are a few benefits listed down to check whether it is worthy or not:

• It can be accessed on any of the trading platforms, with no requirements of installation of any software.
• The Heiken-Ashi indicator can be used along with other technical indicators to provide strong market alerts.
• The indicator helps in lowering down the modest adjustments and filters out market noise, making the signals more visible.
• It is a highly dependable indicator that produces accurate findings.
• The method can be used for any time span, including hourly, daily, monthly, and yearly.
• Any trader can read the candlestick patterns, making it simple to comprehend. In comparison with traditional candlestick charts, heikin-ashi candlesticks are easy to read, patterns and movements both are easily traceable.

Limitations of Heikin Ashi

Heikin-Ashi data is averaged; therefore, real prices are not depicted when the market is opened or closed. This can not be the best strategy for traders who actively trade for the day, as in the case of intraday.

Temporal lag can occur due to the usage of historical prices for generating signals.

The Bottom Line

The Heikin-Ashi technique is beneficial for day trading as well as other short-term trading tactics. This chart style and indication can assist a trader in identifying trends and remaining in profitable transactions. However, traders must understand how it works before utilising it, as price averaging can lead to hazards.