The techniques used to be able to trade are very diverse. One of them is the technique that we will discuss this time, namely the Heikin Ashi technique. This technique will use average price data on the market.

Heikin Ashi is a Japanese candlestick-based trading tool to visualize price data on the market. For more details about this technique, you can read more in the article below. But before that, check out GIC's user satisfaction survey and submit your suggestions on the survey.

Table of Contents


What is Heikin Ashi?

Heikin-Ashi technique is a Japanese candlestick-based technical trading tool that uses candlestick charts to represent and visualize market price data. It is used to identify market trend signals and forecast price movements. The Heikin-Ashi method uses average price data which helps filter out market noise. The absence of market noise produces a clear illustration of the market trend and direction which helps determine potential price movements. The trading technique helps traders in identifying when they should hold a trade, stop a trade, or identify if a reversal is imminent. Traders can adjust their positions, i.e. avoid losses or lock in profits on the chosen position.



The Heikin-Ashi trading technique was developed by Munehisa Homma in the 1700s. It shares some characteristics with traditional candlestick charts used in trading but differs in the way it calculates candlestick values. In Japanese, the word Heikin means “average” or “balance,” and the word Ashi means “bar” or “leg.” Therefore, Heikin-Ashi means “average bar,” resonating with the trading technique, which uses the average price of a security.
 
The main difference between traditional candlestick charts and Heikin-Ashi charts is that Heikin-Ashi charts use a modified formula based on a two-period moving average instead of the open, high, low, and close prices. Therefore, this technique produces a smoother chart that makes it easier to spot trends and reversals. Heikin-Ashi charts also blur gaps and some price data.

Some traders want additional confirmation of the trend direction. HA charts are often used as technical indicators on typical candlestick charts. They can help highlight and clarify the current trend. These technical charts are sometimes used on their own, especially by swing traders or investors. Day traders tend to use these technical charts more as indicators. That's because they have certain other benefits. Before continuing on how to calculate this technique, you also need to take this GIC trading talent test to find out your own trading abilities so far.

How to Calculate Heikin Ashi

When calculating the Heikin-Ashi formula, we use the open-close data from the previous period and the open-high-low-close (OHLC) data from the current period. The modified OHLC values ​​are displayed as candlesticks. The calculation is as follows:




 

Where:
  • HA - Heikin-Ashi
  • -1 – Previous period figures
  • 0 – Current period number
Heikin-Ashi data can be from different time frames, i.e. intraday, weekly, or monthly, etc. HA Open is always set to the midpoint of the previous bar’s body, and HA Close is calculated as the average price of the current bar. HA High is the highest value among the current high, HA Open, and HA Close. HA Low is the lowest value among the current low, HA Open, and HA Close.

How to Read Heikin Ashi

The Heikin-Ashi chart candlesticks are usually red during a downtrend and green during an uptrend. However, different color variations have been known to be used. An indication of a potential trend change is shown by the change in the color of the HA candlestick. We have used stock data for listed entities from February 2020 to June 2020 to generate the figures for the Heikin-Ashi chart below.




Heikin-Ashi charts have smooth directional movements with more consecutive bars of the same color that provide a clearer picture of price movement. Heikin-Ashi charts show some differences from traditional candlestick charts. Traditional candlestick chart patterns change color from green to red and back, making it difficult for traders to interpret and identify trends. Heikin-Ashi charts eliminate noise and display sequentially colored candles, making it easier to interpret and identify previous price movements and current trends. Because this technique candlesticks are calculated based on averages, they will have smaller shadows (wicks) than regular Japanese candlesticks. Just like regular Japanese candlesticks, with this technique candlesticks, the smaller (or shorter) the shadows (or wicks), the stronger the trend. Green candlesticks with no lower shadow indicate a strong UPTREND. Red candlesticks with no upper shadow indicate a strong DOWNTREND.




This technical chart is used by technical traders to IDENTIFY:
  • DIRECTION Trend
  • STRENGTH Trend
So, If your goal is to catch a trend and ride it as long as possible, you might want to learn how to use this chart technique.

How to Read Heikin Ashi to Identify Trend Direction

This technical chart shows the trend direction through color-coded candles. Green candles tell you the trend is UP. Red candles tell you the trend is DOWN.

How to Read Heikin Ashi to Identify Trend Strength

This technical chart shows the strength of a trend by observing the shadows (or wicks).



You will notice that for many green candles, there are no lower shadows or wicks. The same goes for red candles. Most of them have no upper shadows or wicks. These candlesticks do not show shadows in the OPPOSITE direction of the trend. When there are no shadows, this means you are in a strong trend. After learning how to read Heikin Ashi, if you want to consult trading with GIC, you can fill out a trader assessment with the GIC expert team.

How Heikin Ashi Strategy

Below are some Heikin-Ashi strategies that can be utilized to the benefit of traders to increase their profits and margins.

1. The emergence of a strong bullish or bearish trend

This is the most common strategy for the Heikin-Ashi technique, which is to identify the beginning of a strong uptrend or downtrend. The Heikin-Ashi signal indicator is generally considered very reliable and rarely wrong. Therefore, traders can ride the trend profitably due to the credibility of the Heikin-Ashi trend signals. With the emergence of a bullish trend, traders with short positions can exit while those with long positions should increase and consolidate their positions.

2. Identifikasi Candlesticks Tanpa Bayangan

Identifying a candlestick without a shadow is a very credible signal that a strong uptrend is starting. This strategy is one of the main Heikin-Ashi strategies because of its performance record and success rate. The larger the sequence of candlesticks without a tail, the stronger the trend is expected. Similarly, identifying a candlestick without an upper shadow, traders should expect a new steady bearish downtrend to resume.

3. Candlesticks with Small Bodies Indicate a Pause or Reversal in a Trend

The appearance of a candle with a small body is a signal that traders must be aware of and be aware of. This candle is used to signal when a trend is about to stop or reverse. Therefore, when traders notice this, they move to open a new position in response to the trend ending. However, traders must be careful because the trend may stop and not necessarily reverse. In this case, skill is needed on the part of the trader to determine whether it is really the coming of a reversal or just a pause in the trend. You can also use these techniques by trading with GIC. Make sure you have downloaded the GICTrade application on the App Store or Play Store!

How to Apply Heikin Ashi in Metatrader 4 & 5

  1. On MT4 or MT5, simply open a price chart and look at the “Insert” menu at the top. Go to the menu, then Indicators, Custom, then click Heikin-Ashi:
Before you read the next article, subscribe to our newsletter to keep yourself on top, and not miss any great and legit opportunities we come across:
  1. I suggest you to change the color as below: how to use on metatrader


  2. Click the “Line Chart” icon at the top to turn off the regular candlesticks which are still visible below the Heikin-Ashi candlesticks:
  3.  
  5. Now you need to change the color of the line chart to "None" by right-clicking on the price chart and clicking "Properties" or by pressing the F8 key. You need to do this to see only Heikin-Ashi candles on the chart: 

  6.  
  7. You have Heikin-Ashi candles on the chart now. You can do something else to make it easier to have the same on the price chart when you open a new chart. You can right click on the chart, click "Templates" and then "Save Template...". You can name the template something like Heikin-Ashi, and then load it on a new price chart you open in the MT4 platform. To save you time, I have saved a template file that you can download HERE and then apply to the price chart. You don't need to download the Heikin-Ashi indicator for MT4 or MT5 anymore. You can download my template file for free and apply it to the price chart. If you do, you will have a price chart like this in the MT4 or MT5 platform:
  8.  
This is the same process in MT5 to have Heikin-Ashi candles on the chart.

What is the Difference between Heikin Ashi and Candlestick

Please see the screenshots below. The Heikin-Ashi chart is on the left and the regular Japanese candlestick is on the right. Both are 15-minute EUR/USD charts. Can you see the difference? If I were to summarize all the differences in one sentence, I would say that the buy/sell signals or trade setups appear with one candlestick delay on the Heikin-Ashi chart.
 
For example, please see the 2021.03.12 candle at 17:30 on both charts. On the regular candlestick chart, it is a large bullish candlestick that has formed an overpowering buy signal or long trade setup, as it has formed a strong Bullish Engulfing Pattern, which is an overpowering candlestick pattern and my favorite to buy. Therefore, I would go long at the close of this candlestick.
 
However, if I were to trade based on the Heikin-Ashi chart, the 2021.03.12 17:30 candle would not tell me to buy because it did not show any signal. It is just a candlestick with a small body and long shadows. Even though the shadow is long, it still cannot be called a buy signal. It is the next candle, 2021.03.12 17:45, that would tell me to buy because it is a long and strong bullish body that has formed a strong Bullish Engulfing Pattern, which is a strong buy signal. If I wanted to enter the market at the close of this candle, then the same candle on a regular candlestick chart would tell me that it is too late to take a buy position because the price has moved up.
 
Therefore, for a trader like me, who knows candlestick signals very well and likes to enter the market on time, Heikin-Ashi candles are too delayed, both for entry and exit.

Teknik Heikin Ashi

So, the conclusion so far is that if you learn the signals and regular candlestick patterns, you can have better and more optimal entries and exits. However, if you are very new to Forex trading and you have not developed the discipline to take the best and strongest signals, and you are still overtrading, then Heikin-Ashi can help. However, I do not think it can help you become a consistently profitable trader. Heikin-Ashi is not my choice and recommendation for any trader. Another example of the difference is a picture is worth a thousand pips so let's look at some real charts. First, here is a traditional Japanese GBP/JPY chart on the daily (1H) timeframe:

Teknik Heikin Ashi

Here is the same GBP/JPY displayed with this technique's candlestick chart:

Teknik Heikin Ashi

Let's put the two side by side:

Teknik Heikin Ashi

The chart on the LEFT is a traditional Japanese candlestick chart, and the chart on the RIGHT is a chart of this technique. As you can see from the chart on the right, the directional movement is smoothed out in a way that it is not on the chart on the left. The candles on a traditional Japanese candlestick chart often change from green to red (up or down) which can make it difficult to interpret. On the other hand, the candles on this technique chart display more consecutive colored candles, helping traders identify past price movements more easily.
 
You will notice that this technique chart has a tendency for its candles to remain green during an uptrend and remain red during a downtrend. This is in contrast to traditional Japanese candlesticks which change color even if price moves strongly in one direction. You may not realize that the image above is a candlestick chart. You can clearly see that this technique chart looks much smoother in terms of price movement.
 
This is why some forex traders prefer to use this technique candlesticks because it reduces noise on the chart, and allows them to analyze trends more clearly. What makes this technique different from a traditional Japanese candlestick chart is how price is displayed in terms of the open and close. If you look closely at the chart of this technique, you will notice that each candlestick of this technique starts from the MIDDLE of the previous candlestick, and not from the level where the previous candlestick has closed.
Teknik Heikin Ashi

This technical candlestick “acts” this way because of the way it is calculated.

How is an example Of the Heikin Ashi pattern

Hieken-Ashi charts can be applied to any market and most charting platforms now include them as functionality. There are five main signals that identify trends and buying opportunities:
  1. Hollow or green candles without a lower “shadow” indicate a strong uptrend: Let your profits ride!
  2. Hollow or green candles indicate an uptrend: you may want to add to long positions and exit short positions.
  3. A candle with a small body surrounded by upper and lower shadows indicates a change in trend: Risk-loving traders may buy or sell here, while others will wait for confirmation before buying or selling.
  4. A filled or red candle indicates a downtrend: you may want to add to short positions and exit long positions.
  5. A filled or red candle with no higher shadow identifies a strong downtrend: Stay short until there is a trend change.
These signals can make finding trends or trading opportunities easier than with traditional candlesticks. Trends are not interrupted by false signals as often and are thus easier to spot.

  Contoh Heikin Ashi

The chart example above shows how Heikin-Ashi charts can be used for analysis and trading decision making. On the left, there is a long red candle, and at the beginning of the decline, the lower wick is quite small. As price continues to fall, the lower wick becomes longer, indicating that price fell but then pushed back up. Buying pressure begins to increase. This is followed by a strong move up.
 
The move up is strong and does not provide any major indication of a reversal, until there are several small candles in a row, with shadows on either side. This indicates indecision. Traders can look at the bigger picture to help determine whether they should go long or short. Charts can also be used to keep traders in trades after a trend has started. It is usually best to stay in a trade until the Heikin-Ashi candle changes color. However, a color change does not always mean the end of a trend—it could just be a pause.

Advantages of Trading Using Heikin Ashi

  1. No need to think about periods as is usually the case with most indicators. Traders often become obsessed with which parameters to choose for Stochastic, MACD, Moving Averages and many others. With this technique you can set the color of the candles only.
  2. Heiken Ashi indicator compared to regular price charts slows down the market speed, eliminating unnecessary false signals.
  3. It makes many false signals and retracements disappear leaving you with a strong call to action.
  4. Detecting strong trends allows you to stay in the trade without getting nervous or making unnecessary movements.
  5. Accessibility: Heikin-Ashi is one of the most accessible indicators that does not require any installation and can be found on any trading platform.
  6. High graphic readability: Easy to interpret because every trader can read candlestick patterns. Heikin-Ashi candlesticks are better interpreted than traditional candlestick charts, making it easier to identify trends and market movements.
  7. Reliability: Heikin-Ashi is a very reliable indicator, giving accurate results. It uses historical data, which is also quite reliable.
  8. Market noise filtering: The indicator filters out market noise and reduces small corrections making the signals more transparent. The smoothing effect makes it easier to identify trends. The market is full of noise nowadays; therefore, with the help of noise reduction, the Heikin-Ashi technique helps traders plan their entry and exit points more efficiently.
  9. Ability to combine with other indicators: The Heikin-Ashi indicator can be combined with other technical indicators to provide stronger signals on market movements.
  10. Time frame tolerance: This technique can be used on any time frame from hourly, daily, monthly, etc. However, larger time frames are more reliable.
These benefits can be obtained when you understand the Heikin Ashi technique itself. After knowing the Heikin Ashi technique, don't forget to register as an IB Affiliate at GIC or invite friends and get income from these activities.