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An Example of a Trading System Based on a Heiken-Ashi Indicator

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  • An Example of a Trading System Based on a Heiken-Ashi Indicator

    ntroduction

    With the appearance of candlestick chart in the U.S., more than two decades ago, there was a revolution in the understanding of how the forces of bulls and bears work on the Western markets. Candlesticks became a popular trading instrument, and traders began working with them in order to ease the reading of the charts. But the interpretation of candlesticks differ from one another.

    One of these methods, which changes the traditional candlestick chart, and facilitates its perception, is called the Heikin Ashi technology. 1. «Nani Desu Ka?»*

    The first publication about this topic, appeared in 2004 in the February issue of the «Technical Analysis of STOCKS & COMMODITIES» journal, where Dan Valcu published an article entitled «Using The Heikin Ashi Technique» (link to the original article)

    On his Website the author points out that during the summer of 2003 he studied the technology of Ichimoku, and as often happens, accidentally discovered a few diagrams, on which he saw a clearly visible trend of the market. It turned out to be a Heikin-Ashi diagram, or to be more precise, some altered candlesticks.

    This method of analysis was developed by a Japanese trader who became very successful and uses this method to this day. To the surprise of the author, he found no other related information in books or the Internet, so he decided to make it available to all traders by publishing it in a journal.

    The Heikin-Ashi method ( heikin in Japanese means the "middle" or the "balance", and ashi means "foot" or "bar"), and is a visual tool for assessing trends, their direction and strength. This is not a "Holy Grail" of trading, but it is definitely a good and easy-to-use instrument for visualizing trends.

    Let's consider how the calculation of the OHLC candlestick value is performed:

    Closure of the current bar: haClose = (Open + High + Low + Close) / 4
    Opening of the current bar: haOpen = (haOpen [before.] + HaClose [before]) / 2
    Maximum of the current bar: haHigh = Max (High, haOpen, haClose)
    Minimum of the current bar: haLow = Min (Low, haOpen, haClose)



    The values of "Open," "High," "Low" and "Close" are referring to the current bar. The prefix "ha" indicates the corresponding modified values of heikin-ashi.

    Read more - An Example of a Trading System Based on a Heiken-Ashi Indicator

  • #2
    This is a very interesting concept; a modification of a chart pattern that most trading platforms provide. It seems to help visualize a trend faster and easier than using standard methods. as far as I see it is basically an average of the open high low and close and thus filters the noise to give you more of a smoothed average and to better see the trend. , i'm not sure if heiken ashi is another name for japanese candlesticks but you are right in your definition of the japanese candlesticks . I had similar questions as to how people are using the heiken ashi indicator found in metatrader.

    Comment


    • #3
      Heikin-Ashi chart looks like the candlestick chart but the method of calculation and plotting of the candles on the Heikin-Ashi chart is different from the candlestick chart.

      In candlestick charts, each candlestick shows four different numbers: Open, Close, High and Low price. Heikin-Ashi candles are different and each candle is calculated and plotted using some information from the previous candle:
      1. Close price: Heikin-Ashi candle is the average of open, close, high and low price.
      2. Open price: Heikin-Ashi candle is the average of the open and close of the previous candle.
      High price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the highest value.
      1. Low price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the lowest value.

      Heikin-Ashi candles are related to each other because the close and open price of each candle should be calculated using the previous candle close and open price and also the high and low price of each candle is affected by the previous candle.

      Heikin-Ashi chart is slower than a candlestick chart and its signals are delayed (like when we use moving averages on our chart and trade according to them).

      This could be an advantage in many cases of volatile price action.

      This day trading strategy is very popular among traders for that particular reason.

      It’s also very easy to recognise as trader needs to wait for the daily candle to close. Once new candle is populated, the previous one doesn’t re-paint.
      You can access Heikin-Ashi indicator on every charting tool these days.

      Comment

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