How to Use Heiken Ashi Candlesticks

What is the Heiken Ashi trading Strategy?

Heiken Ashi comes from the Japanese term ‘Heikin Ashi’, that means the average bar. The Heiken Ashi indicator modifies how price values are displayed on a chart. Before we glance at the specifics of the Heiken Ashi trading system, let’s quickly recap the fundamentals of Japanese candlesticks. A Japanese candlestick represents four items of price data in visual form, including:

  1. Open
  2. Close
  3. High
  4. Low

The high is represented by the candlestick’s upper wick or shadow. The low is represented by the lower wick or shadow. The body of a candlestick represents the open and close. Basically, if the close is:

Below the open, it shows a red candle

Or if it is above the open, it shows a blue candle

Each candle provides information about the link between the open and shut. In different words: it shows whether or not the value finishes the amount lower or more than once it began. A rudimentary line of thinking is that a crammed holder (red in our chart above), is bearish.

The close being lower than the opening, suggests downward pressure on the price. the same line of thinking suggests that a hollow candlestick (blue in our chart above), is bullish. The close is higher than the opening suggests upward pressure on the price.

Want to know the catch?

In periods of volatility, there are alternating bullish and bearish candles as the price oscillates. The movement makes it difficult to see the trend. this is where Heiken Ashi comes in. It uses modified candlesticks to unravel this problem. Heiken Ashi candlesticks are similar to conventional ones, but rather than using opens, closes, highs and lows, they use average values for these four price metrics.

The Heiken Ashi formula used to derive these average values is as follows:

Open = (open of previous bar + close of previous bar)/2

Close = (open + high + low + close)/4

High = the maximum value from the high, open, or close of the current period

Low = the minimum value from the low, open, or close of the current period

 

So, this was a brief introduction to Heiken-Ashi candlesticks. You can check out the link below and know more about these candlesticks.

https://www.youtube.com/watch?v=2d-My-EdvNs

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