Heiken Ashi Indicator Explained
In this article
Do you know what the Heikin Ashi technique is all about and for what purpose you can use it? The Heikin Ashi technique is a unique and excellent trading tool introduced in Japan for the first time. This technique makes the use of candlestick charts for representing and visualizing the market price and data.
Therefore, you will find this tool effective for identifying the market trends and forecasting the upcoming price movements.
In addition, the Heikin-Ashi method uses average price data with which it can smoothly filter out the market noise. This removal of market noise will result in a proper illustration of market trends and new directions for determining upcoming new price movements.
Historical Background of Heiken Ashi Indicator
When we define the term Heiken Ashi indicator, it’s an application that has gained massive popularity over the last few years. The reason why it was actually introduced is just to bring an immense improvement within the interpretations of the Candlestick formations. The wealthy merchants of Japan introduced it in the 1700s.
Heiken Ashi plays an essential role in removing the candlesticks‘ noise and acting as the moving average. In addition, the traders use Heiken Ashi to determine the relative strength of any trend and even pinpoint some essential key points in the pricing behaviour.
With the help of the Heiken Ashi application tool, all the traders can make a powerful and better-informed decision without any distractions caused by the volatile price action.
Guide on Heikin-Ashi Indicator Formula
The Heiken Ashi indicator is prevalent on the Metatrader4 trading software. The formula for the indicator is given below:
- Close = (Open Price + High + Low +Close) / 4
- Open = (Average of Open Price & Close Price of the previous bar)
- High = (Maximum value of the (High, Open, Close))
- Low = (Minimum value of the (Low, Open, Close))
Here we will share the Heikin-Ashi chart for the readers. Have a look below:
This entire Heikin-Ashi chart has smooth directional moves, fully alongside the successive bars of all similar colours. In this way, traders will be able to have a clear picture of the price movements. This Heikin-Ashi chart will display a few significant differences through the traditional candlestick chart.
These traditional candlestick chart patterns often change the colour from red to green, making it uneasy for the traders to identify the trends and perform the interpretation. With the Heikin-Ashi chart, you can remove the noise and can display some consecutive coloured candles. As a result, traders can quickly identify and interpret the price movements and the current trends.
Applications of Major Heikin Ashi Indicator for Increasing Profits
Here are some common applications of the indicator.
Identification of Candlesticks without any Shadow
It’s a solid signal to highlight the fact that a bullish trend is about to start! Yes, we are talking about the identification of candlesticks without any shadows. Due to the success rate and record performance, this strategy has become the primary one in the Heikin-Ashi strategies. The expected trend gradually turns out to be stronger if the sequences of candles are without any tail. This strategy will help all the old and new traders to acquire high success and growth in market trends and new pricing movements.
Candlesticks having small bodies help to highlight trend Pause or trend Reversals.
The emergence of the smaller candles is generally used to signal when the trend is set to reverse or pause. Therefore, as soon as the traders began to notice it, they instantly open some new positions in contrast with the ending trend. But the traders need to be careful because the trend is reversing and pausing without any reason. Hence, traders should have some basic skills to determine when the trend reversal is about to arrive.
Beginning of a powerful downward & upward trend
Through this strategy, a trader can identify the starting of a powerful downward and uptrend movement. Then, simply look for two consecutive bullish or bearish Hieken Ashi candles to ride the trend.
What are the Advantages of the Heikin-Ashi Technique?
Let’s get into the discussion of a few essential advantages of Heikin-Ashi:
- This indicator does not need any installation and is available on all sorts of trading platforms. In this way, even beginners can use it smoothly without any hassle.
- Even a beginner can interpret and can easily read all the Beiken Ashi candle patterns. Moreover, these Heikin-Ashi candlesticks are entirely deciphered in comparison with the traditional candlestick charts. As a result, traders will be able to smoothly identify the massive market trends and sudden movements.
- It’s a reliable indicator with which a trader can acquire accurate results.
- In addition, the indicator even filters out the market noise, and it even reduces the small corrections. With such corrections, the signals will become more transparent. Moreover, through noise reduction, traders can easily plan their exit and entry points efficiently.
- Another advantage of the Heikin-Ashi indicator is that it can easily combine itself with other technical indicators to grab stronger signals over the market movement.
- This technique is easy to use with any time frame, such as hourly, 4-hour, or daily.
Fundamental Limitations of Heikin-Ashi Technique
Let’s take a look at few limitations of the indicator.
Price Gaps are lacking
The majority of the traders use the price gaps to analyze the price momentum and trigger the entries thoroughly. It might even position the stop-loss orders. Nevertheless, there is a lack of price gaps in Heikin-Ashi, due to which the traders will encounter a specific limitation at the time of trading. This is merely done by switching yourself temporarily to traditional candlesticks.
Lack of full price details
Heikin-Ashi does not display accurate information related to close and open prices. It runs at an average scale. If a trader is a scalper, it might be complex for him to work well with it.
Summing up the whole discussion, we can say that Heikin-Ashi is excellent for letting traders identify the current market trends. This makes it suitable for traders to understand the upcoming pricing trends.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst