What is Heikin-Ashi Candles?

Heiken-Ashi chart looks like a regular candlestick chart but the method of calculating and drawing candles on the Heiken-Ashi chart is different from a regular candlestick chart.

In a regular candlestick chart, each candle has 4 parameters: Open, Close, High, and Low. Heikin-Ashi candles are different, each Heiken-Ashi candle is calculated and drawn with some information from the previous candle:
  • Closing price: A calculation of the average price of the opening, closing, high and low prices.
  • Opening price: A calculation of the average price of the opening and closing price of the previous candle.
  • High price: the high price of a Heiken-Ashi candle is chosen from one of the high, open, and close prices with the highest value.
  • Low price: the low price of a Heiken-Ashi candle is chosen from one of the high, open, and close prices with the lowest value.
Heikin-Ashi candles are related because the closing and opening prices of each candle are calculated using the parameters of the previous candle.

The Heikin-Ashi chart is slower than the regular candlestick chart and its signal is delayed. This is an advantage in many cases when dealing with price action

Heiken Ashi chart is also used by many traders to trade, below is a Heiken-Ashi chart for those who do not know:


Trading strategy with Heiken-Ashi candles

On the chart above; Up candles are marked green and bearish candles are marked in red.

The very simple strategy that people often use with Heiken-Ashi is to back-test and trade directly (live trading).

Another is the reversal Heiken-Ashi Model Strategy combined with a few popular indicators.

Simple Stochastic setup with (14,7,3). The reversal pattern for quality trade signals is when two candles (bullish or bearish) are fully completed on the daily chart, see below as the screenshot of GBP / JPY.


SELL

Once the price creates two consecutive red candles after a series of green candles, the uptrend is over and the reversal is probable. Should consider selling orders.

BUY

If the price creates two consecutive green candles after a series of red candles, the downtrend has run out of momentum and a reversal is possible. Should consider entering buy orders.

SIGNAL FILTER

Just looking at candles like that is not enough for a highly reliable trading strategy. Indicator filters are needed to eliminate false signals and improve performance.

INDICATOR Stochastic Oscillator (14,7,3)

You guys try the Stochastic Oscillator set to 14,7,3.


Everyone will:

Enter sell order after seeing two consecutive red candles being completed and Stochastic above 70 points

Enter a buy order after seeing the completion of two consecutive green candles and the Stochastic below 30 points.


STOP ORDER INDICATOR

To continue to improve the performance of this great strategy, use another indicator. Placing a Stop order once you have entered it.

Buy order in the chart below, place a buy stop order several pips higher than the top of the second Heiken-Ashi candle.

The same applies to sell orders, place a sell stop order a few lower below the bottom of the second Heiken-Ashi candle.

Use Elliot Oscillator for sure shot

Can use Elliot Accelerator Oscillator. This is a pretty good indicator to use for the daily chart. How to use it properly? After the Heiken-Ashi candle is created, use the Elliot Accelerator Oscillator to confirm the reversal point (see picture below).

For buy trading: If two green candles are created in a row, wait for AC to create a green bar on line 0 on the daily chart.

For sell trades: If two red candles are created consecutively, wait for AC to create the red bar on line 0 on the daily chart.


SUMMARY OF STRATEGIC RULES HEIKEN ASHI

The reversal pattern is high value if two consecutive candles (bullish or bearish) are fully completed on the daily chart (as per GBPJPY screenshot). Do not enter immediately after a reversal candle. It is important to consider fundamental news in the market. Avoid dates like:
  • Bank holidays
  • NFP
  • FOMC
  • Central Bank Representative speeches.
Money management
  • Move the stop loss to breakeven when profit reaches 50 pips.
  • Move the stop loss to the major highs/bottoms.
  • Place stop loss about 100 pips.
  • If you already have your own money management strategy, stick with it.
There are a few example images below for you to dwell on:

Date: May 22
Purchase order
Price in: 1.2922
Price out: 1.3215
Result: +300

June 21
Order: Sell
Price in: 1.3215
Price out: 1.3087
Result: +130

Date: October 31
Order: Sell
Price in: 1.3686
Price out: 1.3505
Result: +170