How to Use a Heikin Ashi Chart
Now that you’ve learned how to calculate 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 Heikin-Ashi交易图表详解 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 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 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 Heikin-Ashi交易图表详解 STRENGTH
So If your goal is to catch trends and ride them as long as possible, then you may want to learn how to use a Heikin Ashi chart.
How Heikin-Ashi交易图表详解 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 Heikin-Ashi交易图表详解 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, Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 this means you’re in a strong trend.
So the main thing you want to look Heikin-Ashi交易图表详解 for on a Heikin Ashi chart to determine trend strength is shadowless or wickless candlesticks Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 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 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 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 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 existing trend. Similar to the candlestick patterns the Heikin Ashi has a thick ‘real body’ Heikin-Ashi交易图表详解 and the upper/lower shadows.
The values used to create the open, high, low, and close (Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 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 Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 is changing its direction. It does so, by changing colour and direction, from red to 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 Heikin-Ashi交易图表详解 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.Heikin-Ashi交易图表详解
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 time frame.
Exit: When the Open of the current candle is the low of 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 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 Heikin-Ashi交易图表详解 Heikin-Ashi交易图表详解 is 1.90% whereas the returns from the moving average strategy using the Heikin Ashi 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 purposes only and does not in any form guarantee future returns
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