What are Heiken Ashi candles ? This is a common question, especially for new traders exploring technical analysis. When starting to learn about special candlesticks, traders often encounter certain difficulties. Therefore, to help readers answer these questions, Forex Trading has compiled all information related to Heiken Ashi candles in the article below.
The general theory about Heiken Ashi candles
This is a candlestick pattern developed by the Japanese. It is often seen as an indicator instead of a price chart.
What are Heiken Ashi candles?
In Japanese, ” Heiken Ashi ” translated into means “average price bar”. This candlestick is formed based on the average value. Calculate from past and present data. Although it has many similarities with Japanese candlestick patterns, Heiken Ashi is considered an indicator instead of a price chart. Therefore, candles are often smoothed, similar to a Moving Average (MA). It is capable of analyzing trends accurately.
Candlestick patterns were developed by Munehisa Homma in the 1700s. He was also the creator of the Japanese candlestick chart. Therefore, candles often have a similar shape to types of Japanese candlesticks.
Structural features of Heiken Ashi candles
Candles are formed based on data from the previous candle and the current candle. This type of candle consists of four main ingredients. Including opening price, closing price, highest price, and lowest price, calculated as follows:
- Opening price (1): This is the average of the opening price and closing price from the previous trading session.
- Closing price (2): The average of the opening price, closing price, highest price, and lowest price of the current trading session.
- Highest price (3): The highest price between the opening price, closing price, and the highest price achieved in the current trading session.
- Lowest price (4): The smallest price between the opening price, closing price, and the lowest price achieved in the current trading session.
Characteristics of candles:
- Candles have their own characteristics. Understanding them helps investors apply them effectively in trading.
- Candles are calculated based on past and present data. Therefore, candlestick patterns interact with each other and cause a certain degree of lag. This is the most important feature of this candlestick.
- It provides safer and more accurate entry signals by smoothing the information. This helps investors feel more confident when participating in transactions. Especially in the Forex market, there are many fluctuations.
- Heiken Ashi candles also clearly show the trend of the market. Simple chart, easy to read, not too much information. It is suitable for new investors.
See more: Read candlestick charts: Basic & advanced material
Recipe of Heiken Ashi candles
The formula for calculating candles is as follows:
- The opening price of a Heiken Ashi candle is calculated as the average of the opening price and closing price of the previous candle. (Open price of previous candle + Close price of previous candle) / 2
- The closing price of a Heiken Ashi candle is calculated as the average of the open price, high price, low price, and close price of the current candle. (Open price + High price + Low price + Close price) / 4
- The top of the candle is determined by the highest price of the following levels: Highest price, opening price, and closing price of the candle.
- The bottom of the candle is determined by the lowest price of the following levels: Lowest price, opening price, and closing price of the candle.
Application of Heiken Ashi candlestick pattern in Forex
When applying candlesticks to trading, investors can easily recognize price trends and patterns in the coming time.
Heiken Ashi candlestick signals
- The candle has a long, blue body, and the upper shadow is much longer than the lower shadow. There is not even a lower candle shadow. This type usually indicates a signal that predicts the market will increase in the future. In this situation, the ideal thing for traders is to place a BUY order or continue to hold the stock. This strategy helps optimize profits for investors.
- Candles have long, red bodies, with short or no upper shadows. Accompanied by a long lower candle shadow, it is often a sign that the market will decrease in the future. Therefore, in such situations, traders often avoid opening BUY orders.
- Doji candlestick, with a short body and long upper and lower shadows. Often this is a sign of uncertainty in the forex market. It is likely that the trend will reverse in the future. For venture capitalists, this could be an opportunity to enter the market.
How to identify trends through Heiken Ashi
- Downtrend: Initially, when discovering Heiken Ashi candles, you may think they are no different from other types of candles. However, upon closer observation, you will notice that it is in a downtrend. Red candles predominate and usually make up the majority. Candles also often have no or short upper shadows.
- Uptrend: On the contrary, while identifying an uptrend, candles are often represented by many green candles. In addition, the lower shadow of the candle is often very short or even absent.
Observe price patterns
When observing candlesticks, investors can easily recognize price patterns. Examples include triangles and wedges.
- Triangle
Detecting the triangle price pattern is quite simple. Investors only need to focus on cases of devaluation. This is the time when the triangle pattern often appears. If the price breaks the triangle from above, buying is the appropriate reaction.
Conversely, if the price breaks the triangle from below, selling is a reasonable decision.
- Wedges:
In the wedge pattern, there are two types: rising wedge and falling wedge.
The rising wedge shows the weakening of the uptrend in the market. On the contrary, when a falling wedge pattern appears. It is a sign of weakness in the market’s downtrend.
Similar to the triangle, when the price breaks the upper and lower bounds of the wedge pattern. That is the time when investors should take buying or selling actions.
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How to trade with the Heiken Ashi pattern in Forex
The trading strategy with Heiken Ashi candles is especially useful in technical analysis of the market. Recognize to identify key trends and more likely entry points.
How to enter orders through Heiken Ashi candlesticks
First, investors need to determine the location of the downtrend. Analyzing and making quick decisions is essential.
Next, wait for a candle to start turning from red to green. Based on analysis, the appearance of a green candle usually means a change from a downtrend to an uptrend.
When the first Bull candle appears with a long tail at the bottom. That could be a sign of a strong bottom-catching force at an important support zone.
Investors can open a BUY order as soon as the second candle opens. At the same time, you also need to place Stop-loss right below the tail of the first Bull candle. Taking profits should be done as soon as the first Bear candle appears.
Combine Heiken Ashi with Stochastic and Japanese candlesticks
In market technical analysis, investors can apply a combination of candles such as Heiken Ashi + Stochastic + Japanese candles. This method is not only simple but also highly effective when trading forex.
When used in combination with Stochastic + Japanese candlesticks, there are two situations as follows:
- Investors will open a BUY order when both Stochastic lines surpass level 20 and a candlestick pattern Bullish Engulfing appears. Japanese candlestick chart with candles shows signs of reversal. At the same time, it also shows the upcoming price increase in the market.
- Investors should consider opening a SELL order when the two Stochastic lines surpass level 80 and the Japanese candlestick chart shows a signal of an upcoming reversal and price decrease in the market.
Conclude
Above is some basic information about Heiken Ashi candles that you should know. Forex Trading hopes that through this article, you will better understand the characteristics of Heiken Ashi candles. Wishing traders success when applying this forex knowledge into practice.
Frequently asked questions
What is the meaning of the colors and shapes of Heiken Ashi candles?
This green candle usually indicates an increase in price, while a red candle usually indicates a decrease in price. The shape of the candle can also hint at the market trend.
How to recognize trading signals from Heiken Ashi candles?
Trading signals from candlesticks can be recognized through patterns. At the same time, traders can observe changes in the color of candles.
How to determine entry and exit points in the market using candlesticks?
Market entry and exit points can be determined based on changes in candle shape and color.
