Thursday, December 13, 2018

Heiken Ashi Indicator: Latest Type of Candlestick

When candlestick charts are inserted into the active armory of traders, they are constantly looking for ways to translate these candlestick patterns to be more efficient. Heiken Ashi technical indicators, based on optimal candlestick logic, visually make averages and soften fluctuations in the market, facilitate market analysis, and show the best time to enter the market. An indicator that is flexible and full of intuition that has been used successfully into various profitable trading strategies.

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The use of this indicator was first published in 2004 by financial journalist Dan Valcu in a journal entitled "Technical Analysis of Stocks and Commodities". In 2003, he accidentally discovered a stock chart with a unique technique that reversed the traditional way of looking at a price chart and facilitating perceptions of market trends. The end is called HeikenAshi graphics, or changed candles. The first attempt to use this method to the price bar was very successful until the program code of the indicator to be used in the trading terminal was developed by the author before being published in writing.

So, is that Nan Desu Ka or Heiken Ashi?

The Heiken Ashi Method (from Japanese Heiken - "Balanced" ("Middle"), Ashi - "Kaki" ("Intermediate Line")) creates a visual tool to predict the direction and strength of a trend. This is very important because Forex is very volatile over all financial markets. The most basic difference from ordinary candles is the Heiken Ashi indicator using ordinary price beams in a graph, but in its creation it processes prices rather than each of the price beams and makes an average that makes it more straight. Candlesticks are usually indicated by body and shadow, depending on price movements in the market, with various colors: white or green (positive movement), red (negative movement). The table below shows the difference with the usual chart and the graph using the indicator

The following is the formula used to calculate fertilization rather than the BTRTu value rather than the Heiken Ashi indicator candle.

Current position of the price block cap:

haClose = (Open + High + Low + Close) / 4;

Position Open current price beam:

ha Open = (ha Open [before.] + ha Close [before]) / 2;

Current high beam position:

haTinggi = Max (High, ha Open, ha Close);

Low beam position price:

ha Low = Min (Low, ha Open, close).

The price value of Open-High-Low-Close refers to the current price beam (which is happening). The prefix [ha-] refers to the change in value (each) obtained from the Heiken Ashi method.

These formulas indicate that the Heiken Ashi Indicator makes each price beam with a slight delay, and trading signals also occur with a delay because the prices used to make Heiken Ashi candles depend on the price made from the previous candle.

This delay is a strength and also a weakness of this indicator. Because of the delay, this indicator is very important for use with highly volatile currency pairs (eg EUR / JPY, GBP / JPY), because this indicator can warn against entering the wrong trading position or the wrong level of breakthrough.

Installation and Preparation

Heiken Ashi price charts in candles can be integrated in every available technical analysis system. The standard Heiken Ashi indicator is available in the MT4 indicator set (5) and this is in the "Custom Indicators \ Heiken_Ashi.mq4" section or "Custom Indicators \ Heiken_Ashi.mq5". There are only ways to change colors and graphic elements. Can be installed in the usual way:

There are several types of this indicator that have more change choices.

Trade Signals from the Heiken Ashi Indicator

White (Green, Blue) candles or rows of candles:

  • Long body without shadow: A strong uptrend (will continue). Trade signals: buy or add buy positions.
  • Long body and short shadows: A rising trend. Trade signals: buy or add buy positions.
  • Short body and long shadow: the uptrend is weakening. Trade signal: close all long positions.

 Red candle (or candle row)

  • Long body without shadow: a very strong downward trend (will continue). Trade signal: make a pending order to buy or add a sell position.
  • Long body with short shadows: down trend. Trade signal: make a pending order to buy or add a sell position.
  • Long body with long shadows: down trend is weakening. Trade signal: close all short positions.

Candle (any color) with short body and long shadow:

Signal that the trend has weakened and it is possible that the direction of the price will reverse (similar to the Doji candle). Additional signals are needed to confirm. Of the various variations of this indicator, several candles are marked with color differences.

How to use this indicator in a trading system

To create a trading algorithm, we can recommend some rules for using Heiken Ashi, as proposed by the author:

  1. Trend rises - white candle (blue, green) (ha Close> ha Open).
  2. Trend drops - red candle (ha Close <ha Open).
  3. Strong uptrend - white candles (blue, green) without bottom without without (ha Open = ha low).
  4. Strong downtrend - red candle with no high point (ha Open = high).
  5. Trend consolidation - several rows of candles (any color) with short bodies and long shadows.
  6. The trend reverses - candle (several candles) with a short body of one color, and a long shadow with the opposite color. However, the signal is not fully reliable, because maybe the trend is being consolidated like point number 5.
  7. With conditions such as points 1-2-3-4 (prices are in a strong trend or trend), then we open a position by placing a stop 1-2 points above / below the min / max point of the previous candle, or holding a pending order position , while consistently moving the stop point according to market prices.

If the market sees conditions such as point number 5 (consolidation) or option number 6 (trend reverses), then close the current position (no other choice!) Unless it does not close itself, and we wait before the opening of a new position. There are times when additional signals or other indicators are needed to filter the position (moving average or oscillator). When a new candle is formed in the opposite color that can be confirmed by other signals, we close the current position and make a new position in the opposite direction. An example of a strategy with this indicator is shown below:

Advantages and Disadvantages of the Heiken Ashi Indicator

The Heiken Ashi technique changes the appearance of the candlestick chart by creating a synthetic candle that takes price variability rather than the usual chart, and gives the trader a better picture, which clearly shows the area that is in trend or consolidation, as well as strength rather than the market trend . In a rising trend, most of the white candles (blue, green) do not have a downward shadow and most of the red candles do not have a shadow above when the trend is down. The chart using this indicator does not have price breaks, because the new candle starts in the middle of the previous price.

It's easy to determine the end of a correction in this graph - when the trend weakens, the bodies of the candle are shorter, and the shadows are longer; changing the color of the candle to the opposite color is a good signal for the buy / sell position.

The delay of this indicator signal is difficult to consider as a weakness. Problems can occur only when we choose to work in periods M1 and M5. In the majority of cases, the slow response of this indicator significantly reduces the number of false signals and prevents you from opening a position opposite the market.


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