Heikin-Ashi is the name of a trend indicator for online trading. Technically, Heikin-Ashi is a different way to calculate and thus represent price candles. In reality, it is also a radical, and potentially very useful, approach to studying prices. Invented in Japan a few years ago, it is spreading like wildfire. Among the reasons, the ability to “clean” the chart of “background noises”, which are the main causes of false signals.
It can be used in Forex trading, stock trading, indices trading and also goes well with other strategies and indicators such as Ichimoku.
Heikin-Ashi: a revolutionary method
The Heikin-Ashi chart looks like a classic candlestick chart. These candles, however, are “calculated” in a completely different way. Here are the formulas of the elements that characterize Heikin-Ashi candles.
HA Close = (Open + High + Low + Close) / 4
HA Open = (HA Open  + HA Close ) / 2
HA High = Max (High, Open, Close)
HA Low = Min (Low, Open, Close)
These calculations can easily be the prerogative of the platform, so it is enough to rely on a broker who offers the Heikin-Ashi chart.
The feature that immediately catches the eye is the ability, intrinsic and automatic, of Heikin-Ashi to correct the candlestick chart. Specifically, to cleanse it of those sudden and momentary price movements of adjustment, not significant from the point of view of the trend. It is much easier, therefore, to understand what situations the asset is facing and to produce estimates for the immediate future. Technical analysis, as well as graphic analysis, are extremely facilitated and protected from the risk that most worries traders: the appearance of false signals.
Heikin-Ashi: operational strategies
Once you have replaced the candlestick chart with the Heikin-Ashi chart, it is possible to implement some operational strategies.
One of the most interesting ideas and methodologies for using heiken ashii lies in determining pullback entries. I summarize the important points here.
- We know that the opening price of HA is the average price (High + Low) / 2
- Let’s check the color of the last HA just closed which will indicate the probable trend to trade
- In case of a previous rise LONG SIGNAL we will try to re-enter the upside if the current price first falls below the open (average of High Low) and then we will place a BUY STOP order on the current max.
- In case of a SELL SIGNAL we will evaluate the same scheme but in the opposite
- If the HA closes in the opposite color to our intentions then we cancel the order (or close it even if at a loss).
- At the next candle we repeat the pattern
Supports and resistances: for example, the way of identifying supports and resistances changes (the methods of use of which remain however unchanged). The opening and closing levels of Heikin-Ashi candles can act as support levels: if the candles are red, then you are in a negative trend. At the same time, they can act as resistance levels: if the candles are green, then you are in a positive trend.
Trend following: in addition, thanks to Heikin-Ashi, a signal is activated that is really easy to use, within everyone’s reach, clear and reliable. If a red candle is followed by a green one, since non-structural volatility is ignored, it can be seen that a positive trend will soon be established. Conversely, if a green candle is followed by a red one, then a negative trend is about to start.
In this image you can see the clarity with which the Heikin-Ashi chart detects the establishment of trends, compared to the uncertainties revealed by the classic candlestick chart.