Then,Heiken ashi candle is very familiar to investors in the field of financial investment. This is a Japanese candlestick indicator that helps investors average prices in the market. Among Japanese indicators, investors are extremely familiar with Ichimoku, Hammer,… So what is the concept of Heiken Ashi? How to use this candlestick indicator? Let’s find out the details with Forex Trading right now.
Basic Japanese candlestick technical analysis: Heiken Ashi candles
Heiken Ashi is a basic Japanese candlestick patterns indicator developed in 1700. The creator of this indicator is named Munehisa Homma.
What is the basic concept of Heiken Ashi candles?
In Japanese, the meaning of the word Heiken is average, the meaning of the word Ashi is clear or true. Combining the whole cluster will get the average bar. The value of the candle is calculated based on past and present data.
Although the Heiken Ashi has many similarities with the Japanese candlestick pattern, it is an indicator and not a price chart. The main difference between traditional candlestick charts and Heiken Ashi charts is that Heiken Ashi charts use a modified formula. They are based on two moving averages instead of open, high, low, and close prices. Therefore, this technique creates a smoother chart that makes it easier to identify trends and reversals quite accurately.
Structural analysis of Heiken Ashi candles
Heiken Ashi candle are composed of data from past candles and current candles. This indicator is also composed of 4 main components which are open price, close price, high price, and low price. The opening price will be calculated as the average of the opening price and closing price in the previous session. The closing price is calculated as the average of the opening price, closing price, high price, and low price in the previous session. The highest price is the maximum value of the opening price. and the lowest price is the smallest value of the opening price.
See more: Read candlestick charts: Basic & advanced material
Method for identifying trends with the Heiken Ashi model
Using Heiken Ashi can help investors identify the starting point of a strong trend. And adjust your investment portfolio to suit yourself. Investors can open or add buying positions when an uptrend appears. And it is possible to close the position when the trend starts to decrease.
When the chart displays candles there are no shadows at the bottom. They give a strong signal of the start of an uptrend. Traders can watch to maximize profits instead of selling assets early.
Determine the uptrend of Heiken Ashi
With an uptrend, the following conditions must be met. First, the price needs to go up. Most green candles must follow the upward direction of the chart. If the bodies of the candles increase over time, the movement will increase sharply. Small candle bodies indicate a trend is about to end. With strong movements, Heiken candles will form small or no shadows below.
Identify the downtrend of the Japanese candlestick pattern
With a downtrend, the following conditions must be met. First, the price needs to go down. The red candles must all follow the downward direction of the chart, this symbolizes a downtrend. If the bodies of the candles increase over time, the movement will increase sharply. Small candle bodies represent a trend that is about to end. In a downtrend, candles will have small upper shadows or no shadows.
Triangle trend and reversal trend of Heiken Ashi candle
There are three types of Heiken Ashi triangles: ascending, descending, and symmetrical. If the indicator crosses the upper border of a symmetrical triangle. Or an ascending triangle, it is likely that the uptrend will continue. Then If the candlestick falls below the lower line of the descending triangle, it signals a continuation of the downtrend.
If the upper limit was crossed during the previous uptrend, open a long position if the uptrend continues. If the price exceeds the exchange, wait for a reversal and the investor can open a short position.
Trend reversal signals help determine when to exit a trade in the previous trend and enter a new trend. By identifying reversal signals, investors can avoid losses. Investors can use a combination of Doji candles and wedge patterns to increase signals of trend reversal
Doji candles are candles with small bodies and long shadows. This is always a sign of instability in the market. As for the Heiken candle, it represents a trend reversal. There are two types of wedge patterns: ascending and descending wedges.
Wedges also have similarities to triangles. The rising wedge indicator requires the trader to wait for the candle to break below the bottom point of the indicator. If the wedge falls, investors should expect the price to break above the upper line and the downtrend to reverse.
Combine Heiken Ashi candlestick trading with basic Japanese candlestick patterns
Combining Heiken candles with other indicators will increase the percentage of accuracy when investors perform technical analysis.
What is the method of combining RSI with Heiken Ashi candles?
To use this trading method, investors need to install it on the H1 time frame. Use 3 types of combined indicators: EMA 50, RSI, and Heiken Ashi. For buy orders, investors need to determine the horizontal or diagonal resistance level of the old trend. The price needs to break the EMA 50 and the Heiken candle needs to turn green. Finally, RSI needs to break above 55. When these conditions are met, investors can buy.
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Method of combining Heiken Ashi candles with morning star candles
Morningstar candlestick is a 3-candle pattern that often appears at the end of a downtrend and signals an uptrend. In other words, the appearance of a pattern is a warning signal that the previous downtrend is about to end and a new uptrend is about to begin.
To combine Heiken candles with Morning Star candles, investors need to analyze the market to see if the moving trend is stable. Use the morning star candlestick to determine whether the trend can reverse or not. Then take advantage of Heiken candles to determine the order placement point. If it is an uptrend, investors can place a buy position and vice versa.
Conclude
As per the information that Forex Trading has provided, investors can see that the heiken ashi candle is an important and useful indicator. However, identifying candles and applying candles to technical analysis is not easy. Supplement yourself with solid professional knowledge. And experience in the market to have sensitivity to economic information. This will help investors increase their winning percentage in the market. What are you waiting for? Use Heiken candles to plan future trading strategies right now.
FAQs
When using Heiken candles, is it necessary to identify candle shadows?
Identifying candles without shadows before trading with heiken ashi candle is important and necessary.
While trading with Heiken candles, what signal does the appearance of candles with small bodies signal?
When trading, if a small body candle appears. This is a signal that a trend will reverse or pause.
To identify the trend with the Heiken candlestick chart, what should you pay attention to?
Investors need to pay attention to the length of the candle. Besides, observe the ratio of sizes between candles.
