Heikin Ashi: A Better Candlestick For You To Trade In 2023
Have you ever heard of the famous Heikin Ashi, a better candlestick option for you to trade in 2023? Why is it so popular among ambitious traders worldwide, and what is it frequently utilized for?
As someone heavily involved in trading, a general understanding of powerful candlesticks can significantly impact your success in this industry. Whether you’re a professional trader or have some relevant experience, it’s important to know why candlestick charts are useful.
But what is the Heikin Ashi Candlestick all about? What is the Strategy, and how to read these candles the best?
Before we give you all the crucial answers, let’s look at the definition of this candlestick first, shall we?
What Is the Heikin Ashi Candlestick Pattern Exactly?
Heikin Ashi, also known as “Heiken-Ashi”, is the Japanese term meaning “average bar”. Its candlesticks are an offshoot derived from Japanese candlesticks.
Heikin Ashi candles represent an adjusted way to show data on the candlestick chart, usually, the ability to loosen the volatility of the particular currency pair. Doing so, they allows traders to develop more advanced trading strategies.
Heikin-Ashi charts, translating to “average pace” in Japanese, utilize regular candlesticks’ open and close prices. It also uses the current period’s open-high-low-close data to formulate a comprehensive candlestick. These charts refine trend visibility by filtering market noise.
Unlike regular candlesticks that present numerous bullish or bearish reversal patterns in 1-3 candlestick formations, Heikin-Ashi charts primarily aid in recognizing the following:
- Ongoing trends
- Potential reversal points
- Standard patterns in technical analysis.
They also provide useful insights for setting stop-loss points by examining the upper shadow.
What Can Traders Spot with This Candlestick?
One particular candlestick chart will enable traders to spot the two main things:
- The total trend
- The amount of volatility of the markets in a particular candlestick.
A Unique Charting Method Explained
Heikin Ashi represents a unique charting method that refines the visualization of price action by calculating averages that form data points similar to a traditional candlestick chart. However, it does so with significantly less market ‘noise.’
Smoothing out erratic price movements delivers a cleaner, more digestible representation of price trends. This technique is useful in overcoming the choppiness and volatility often associated with markets.
Simplifying Market Trends with Heikin Ashi
Instead of portraying every single price fluctuation, the Heikin Ashi approach applies a specific mathematical formula to filter out this noise and highlight the broader market trend.
Doing this makes it easier to determine market trends.
This, in turn, can assist with making trading and investing decisions. Experts say reading the Heikin Ashi candlestick pattern can be easier.
On MetaTrader 4, red means bearish and green means bullish candlesticks, matching the open price. This can help with trading and investing decisions. This method does not show every price change.
Using the formula to remove the “noise”
Instead, it uses a formula to remove the noise and emphasize the overall market trend. This chart is a special way to show price movements on a chart. It uses averages to create data points like a regular candlestick chart.
Heikin-Ashi is a special way to show price movements on a chart. It uses averages to create data points like a regular candlestick chart.
What Is the Formula?
Standard candlestick charts consist of open-high-low-close (OHLC) candles arranged along a time series. At the same time, the Heikin-Ashi method employs a modified format, using close-open-high-low (COHL) values. The formulae for this method are as follows:
- Close: (Open + High + Low + Close) / 4 (This calculates the average price of the current bar)
- Open: (Open of the previous bar + Close of the previous bar) / 2 (This gives the midpoint of the previous bar)
- High: Maximum of [High, Open, Close]
- Low: Minimum of [Low, Open, Close]
Why Is Reading Heikin Ashi Pattern so Helpful?
Reading the Heikin Ashi candlestick pattern can help with trading and investing decisions. Heikin Ashi candles show data on a candlestick chart differently, reducing the volatility of a currency pair.
Traders find them useful for spotting price points (open, close, high, low) within a specified time frame. Experts say reading the Heikin-Ashi candlestick pattern is easier than you think. On MetaTrader 4, red means bearish and green means bullish candlesticks, matching the open price.
Where Can You Use the Heikin-Ashi Technique?
When comparing Heikin Ashi vs candles traditionally, in securities trading, Heikin Ashi excels in trend prediction and readability.
It guides traders to stay during persistent trends and exit when trends wane or reverse, which is crucial for profit-making as most earnings occur in trending markets.
How to Read Heikin Ashi Candlesticks the Best?
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According to our experts, it can be much easier if you have wondered how to read this famous Heikin Ashi candlestick pattern best. Like traditional candlestick charts, this chart, utilizing average prices, can be employed across all timeframes.
The default colours on the MetaTrader 4 platform are red for bearish and green for bullish candlesticks, which correlate with the open price. To set Heikin Ashi on MetaTrader 4, go through the ‘insert’ – ‘indicators’ – ‘custom’ menus and opt for ‘Heikin-Ashi’.
One remarkable advantage of Heikin Ashi is its colour consistency during trending markets, reducing noise from sporadic counter-trend colours observed in normal candles.
Five Pivotal Trend Signals
It offers five pivotal trend signals: green candles with no lower ‘wicks’ signify strong uptrends. Green candles represent regular uptrends; candles with small bodies and upper-lower wicks suggest potential trend reversals.
On the other side, red candles indicate downtrends, and red candles without upper shadows reveal strong downtrends.
Identifying Trend Strengths and Reversals with Heikin Ashi
Charts displaying long runs of similar candlesticks indicate robust trends. Numerous long wicks on one candle side suggest building market pressure. Traders typically use this candlestick pattern to hold their positions longer, adjusting only when the candle colour shifts.
Whether you’re a pro trader or have experience, it’s crucial to understand the usefulness of candlestick charts. Traders find them useful for spotting price points (open, close, high, low) within a specified time frame. These shifts can signal significant trend reversals.
Some aggressive traders might start trades based on ‘doji’ formations. However, any approach should be tested in a demo environment before live trading.
Bottom Line
While Heikin-Ashi’s averages may not reflect the actual market trading prices, it effectively smoothens chart trends to provide a superior trend indication. It is essential, however, to pair it with technical analysis for optimal entry and exit points determination.
Traders employ Heikin-Ashi as a valuable tool alongside technical analysis for better trend identification.
Choosing indicators to pair with this method largely depends on the trader’s familiarity and practice. Common compatible indicators include Moving averages, Bollinger bands, and the Relative Strength Index.
