In trading, when analyzing long-term movements of prices, traders often use a special type of chart called Heikin Ashi or Heiken Ashi. This is a chart designed with more features than the Japanese candlestick chart. So what is Heikin Ashi candlestick chart? How to use Heiken Ashi trading strategy? In today’s article, I will answer for you these questions.
Video on how to use Heikin Ashi chart
What is Heikin Ashi candlestick chart?
Heikin Ashi aka Heiken Ashi (abbreviated as HA) means an “average candle”. It is a very special type of candlestick. In appearance, the color is no different from Japanese candlesticks. But the calculation to create an HA candle is very different. The most important part of it is the average value. Let’s take a closer look.
The calculation to create a Heikin Ashi candlestick
To create an HA candlestick, the parameters are calculated as follows:
(1) Opening price of HA = Average closing and opening prices of the previous HA candlestick = (Previous HA opening price + Previous HA closing price) / 2.
(2) Closing price of HA = Average of closing, opening, highest, and lowest prices of the current candle = (Opening price + Closing price + Highest price + Lowest price) / 4.
(3) Peak of HA = choose the highest level among the 3 including the highest price, opening price, and closing price.
(3) Trough of HA = choose the lowest level among the 3 including the lowest price, opening price, and closing price.
Heiken Ashi candlestick chart
Looking at the price chart with this special candlestick pattern, you will see:
- Bearish prices (downtrend), Heikin Ashi candles will be in red and lined up close together. The next HA will open from the middle of the previous candlestick. The current closing price will be lower than the previous closing price. At the same time, the candle shadow usually points downwards.
- Bullish prices (uptrend), Heiken Ashi candles will be in green and lined up close together. The next HA will open from the middle of the previous green candlestick. The current closing price will be higher than the closing price of a previous candle. Candlestick shadows usually head up.
Compare between Heiken Ashi candlestick and Japanese candlestick
You can see the table below to compare the advantages and disadvantages of each candlestick.
|Heiken Ashi Candlestick||Japanese Candlestick|
|Popularity||Not used by many people because most of them do not fully understand its use||Used by most traders in the world|
|Chart||Opening and closing prices are quite complicated. So you need to study the formula and understand its structure||Opening and closing prices are easy to understand|
|Trend prediction||Medium and long terms||Short and medium terms|
|Usage||Filter bad signals. Very effective in long-term trading when the trend is clearly formed.||Effective when used in short-term trading to capture price movements.|
Signal of price trend reversal when using HA candlesticks
Traders can observe the following 2 signals to know the market is about to reverse.
Signal 1: The price creates Heikin Ashi Doji candlesticks
When the HA candlestick chart creates Doji candles, it signals the hesitation of the market. The price is likely to reverse.
Signal 2: Heikin Ashi candlesticks show signs of slowing down.
This is a signal of trend reversal when the opening prices of HA candlesticks are close to the closing prices of the previous candlesticks.
Heiken Ashi trading strategy in Binary Options
Traders use Heiken Ashi candlesticks mainly to identify long-term price trends. They then combine it with price signals to open orders. This is the most popular Heiken Ashi trading strategy. Let’s take a look at some of the combinations.
Combine with Japanese candlestick chart
This is a very effective combination when simultaneously exploiting the advantages of 2 types of charts. First, you need to open 2 parallel charts for 1 currency pair. Then, use Heiken Ashi to identify trends. Finally, use Japanese candlesticks to find entry points.
Conditions: A 5-minute Heiken Ashi candlestick chart and a 5-minute Japanese candlestick chart. The expiration time of 15 minutes or more.
How to open an option:
+ Open an UP option when the HA candlestick chart shows signs of reversal from decreasing to rising. At the same time, a bullish reversal candlestick pattern appears on the Japanese candlestick chart (Bullish Harami, Bullish Engulfing, Morning Star, etc.).
+ Open a DOWN option when the HA candlestick chart shows signs of reversal from rising to decreasing. At the same time, a bearish reversal candlestick pattern appears on the Japanese candlestick chart (Bearish Harami, Bearish Pin Bar, Evening Star,etc.).
Combine with RSI indicator
With this combination, the RSI will identify the trend and the signal candlestick on the Heiken Ashi chart will become an entry point.
Conditions: A 5-minute Heiken Ashi candlestick chart, RSI indicator (14). The expiration time must be 15 minutes or more.
How to open an option:
+ Open an UP option when the RSI indicator is in the oversold zone (30). At the same time, the price creates HA candles with signs of reversal from decreasing to increasing.
+ Open a DOWN option when the RSI indicator is in the overbought zone (70). At the same time, the price creates HA candles with signs of reversal from increasing to decreasing.
Combine with SMA30 indicator
SMA30 is a very good indicator in the medium and long term prediction of prices. Combining it with this Heiken Ashi candlestick will give very accurate trendy orders.
Conditions: A 5-minute Heiken Ashi candlestick chart, RSI indicator (30), the expiration time of 15 minutes or more.
How to open an option:
+ Open an UP option when the green (bullish) HA candlestick crosses the SMA30 line from below. At the same time, the SMA30 reverses upward.
+ Open a DOWN option when the red (bearish) HA candlestick crosses the SMA30 line from above. At the same time, the SMA30 reverses downward.
The above article introduces you to the Heiken Ashi candlestick and how to use it in trading. This is a very popular candlestick pattern used by trend traders. Using this candlestick is a skill that you need to learn.
Thank you for your time reading this article. Let’s get familiar with this Heiken Ashi trading strategy on a DEMO account.