How to Use a Heikin Ashi Chart
Now that you’ve learned how to calculate Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 Heikin Ashi candlesticks, let’s discuss how to use and read a Heikin Ashi candlestick chart.
The idea behind using a Heikin Ashi chart is that it filters market noise.
And since noise is filtered, you basically see the naked trend.
Because the Heikin Ashi candlesticks Heikin-Ashi交易图表详解 are calculated based on averages, the candlesticks will have smaller shadows (wicks) than a regular Heikin-Ashi交易图表详解 Japanese candlestick.
Just like with regular Japanese candlesticks, with a Heikin Ashi candlestick, the smaller (or shorter) the shadow (or wick), the stronger the trend.
Green candles with no Heikin-Ashi交易图表详解 lower shadow signal a strong UPTREND.
Red candles with no upper shadow signal a strong Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 DOWNTREND.
Heikin Ashi charts are used by technical traders to IDENTIFY:
- Trend DIRECTION
- Trend STRENGTH
So If your goal is to catch trends and ride them as long as possible, Heikin-Ashi交易图表详解 then you may want to learn how to use a Heikin Ashi chart.
How to Use Heikin Ashi to Identify Trend Direction
A Heikin Ashi chart shows you the direction of a trend through its color-coded candles.
A green candle is telling you that trend is UP. A red candle is telling you that the trend is DOWN.
How to Use Heikin Ashi to Identify Trend Strength
A Heikin Ashi chart shows you the strength of the trend by observing the shadows (or wicks).
You’ll notice that for many of the green candles, there is no lower shadow or wick.
These candlesticks do not Heikin-Ashi交易图表详解 show a shadow in the OPPOSITE direction of the trend.
When there is no shadow, this means you’re in a strong trend.
So the main thing you want to look for on a Heikin Ashi chart to determine trend strength is shadowless or wickless candlesticks opposite the trend.
Candlesticks that have no shadow or wick on one end are also called “shaved candles“.
Depending on which end lacks a shadow, there’s a name for Heikin-Ashi交易图表详解 each type of shaved candle.
If there is no lower shadow/wick, also known as having “no tail”, the candle is called a “shaved bottom“.
“Shaved butt” would’ve been a Heikin-Ashi交易图表详解 better name in our opinion. 🤣
If there is no upper shadow/wick, also known as having “no head”, the candle is called a “shaved head“.
Technically, the color of the candle does NOT matter, as long a candle lacks a tail or head, but for the purposes of Heikin Ashi, we want to see shaved bottoms that are green and Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 shaved heads that are red since we’re looking for trend strength.
Strategising Heikin Ashi chart pattern
As mentioned in the previous article Understanding the Japanese bar, the Heikin Ashi chart pattern Heikin-Ashi交易图表详解 is plotted in a different way than the standard candlestick charts, this helps us, traders, to identify the emergence of a new trend or reversal patterns in an already Heikin-Ashi交易图表详解 existing trend. Similar to the candlestick patterns the Heikin Ashi has a thick ‘real body’ and the upper/lower shadows.
The values used to create the open, high, low, and close (OHCL) for the Heikin Ashi candle are not OHLC values that the underlying asset had. The Heikin Ashi candles are instead based on average prices of both the current and Heikin-Ashi交易图表详解 prior timeframe. This is what makes Heikin Ashi charts smoother. Below is an illustration of a chart of the same asset using both Heikin Ashi and standard candlesticks.
Strateging Heikin Ashi
The Heikin Ashi provides its own trade signals by alerting traders when the price is changing its direction. It does so, by changing colour and direction, from red to Heikin-Ashi交易图表详解 green or green to red. Green candles show buying pressure (bullish trend), while red candles Heikin-Ashi交易图表详解 show selling pressure (bearish trend). Adding a moving average indicator can help to filter these signals, so trades are only taken in the more dominant trend direction. As see in the illustration above, the signals are smoother on the Heikin Ashi chart patterns as they filter the data by averaging the current price movements with the previous price movements.
This is a sell-side strategy on Heikin Ashi chart patterns in 15 mins time frame.
Sell: When the Close of the current candle closes lower than the Moving Average.
( Close(0)) closes lower than ( close, 9, SMA, 0) On a 15 mins Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 time frame.
Exit: When the Open of the current candle is the low of Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 the current candle.
( Open(0) = Low (0))
Stoploss: 0.5 %
Target profit: 6%
Mentioned below is the backtest result of the same strategy on the Streak platform for the ITC chart that evaluates the performance of the strategy and gauges different parameters for us. We can not only evaluate the profits/Losses on previous charts but also Heikin-Ashi交易图表详解 calculate the alpha of the strategy.
Evauating the backtest result
Backtesting is the process of testing a trading strategy on relevant historical data to ensure its viability before the trader risks Heikin-Ashi交易图表详解 any actual capital. A trader can simulate the strategy and analyze the results. The backtest results although DO NOT promise any future returns.
The backtest on Streak.tech, enables traders to evaluate the maximum and minimum returns. The average period return for the stock is 1.90% whereas the returns from the moving average strategy using the Heikin Ashi Heikin-Ashi交易图表详解 chart is 13.2 % which is a good alpha for this particular chart. The winning streak is 5 and the loss is maintained at 3. The maximum exposure ( Maximum drawdown) for a strategy with 13.2% is 1.08%.
*This strategy is for educational Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 purposes only and does not in any form guarantee future returns
heikin-ashi
Fourier Extrapolation of Variety Moving Heikin-Ashi交易图表详解 Averages is a Fourier Extrapolation (forecasting) indicator that has for inputs 38 different types of moving averages along with 33 different types of sources for those moving averages. This Heikin-Ashi交易图表详解 is a forecasting indicator of the selected moving average of the selected price of the underlying ticker. This indicator will repaint.
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Heiken-Ashi Trading— The Full Guide in Python.
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Candlestick charts are the most common form of graphical analysis. They are Heikin-Ashi交易图表详解 an easy way to understand market psychology while having all the quantitative information needed for Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 the market price. In this article, we will introduce the concept of candlesticks and then discuss…