All the nuances of trading with Heiken Ashi
Many traders chase the modifications of indicators, believing that the more "contrivances" in it, the more accurate and profitable trading signals will be. Standard indicators turn out to be completely undeservedly forgotten and abandoned.
Today we will talk about one of such indicators, which, when used properly, gives a trader a huge advantage. We are going to talk about Heiken Ashi indicator.
What are the advantages of the Heiken Ashi indicator?
Very often, the increased volatility confuses traders, especially beginners, breaking their trading plans. The Heiken Ashi indicator as if mutes the volatility, transforming sharp jumps into smooth and easy-to-read price movements.
HA is a kind of filter of low-frequency market fluctuations, while doing it the same way on all timeframes, which allows you to use it effectively in both short-term and long-term trading.
Heiken Ashi is a lagging indicatorIt is based on already formed Japanese candlesticks. This allows the indicator to minimize market noise and filter out false movements.
The deceleration property of the Heiken Ashi indicator is simply invaluable for traders who prefer to trade cross-courseswhich have a very high volatility.
What is the difference between Haken Ashi candlesticks and Japanese candlesticks?
The Heiken Ashi indicator looks like the familiar Japanese candles, but the candles of the indicator are built according to a completely different formula:
- Open price (Open) - calculated as the arithmetic average between the open and close prices of the previous candle;
- Closing price (Close) - calculated as the arithmetic average between the opening, closing, maximum and minimum points of the preceding candle;
- Local candle minimum (Low) - calculated as the arithmetic average between the minimum price, as well as the opening and closing prices of the preceding candle;
- The local maximum of the candle (High) - calculated as the arithmetic average between the maximum price, as well as the opening and closing prices of the preceding candle.
How to install the Heiken Ashi indicator on the chart?
As we mentioned above, the Heiken Ashi indicator is included in the set of standard indicators of the MetaTrader 4 platform and is installed from the "Navigator" panel.
When installing the indicator, pay attention to the "Input Parameters" tab. Since Heiken Ashi candlesticks are superimposed over Japanese candlesticks, you may well need to change the colors in the settings so that the candlesticks do not merge with each other.
If you have trouble adjusting the color scheme, you can use the already ready-made template. You will get a chart with the Heiken Ashi indicator candlesticks in this form.
Does the Heiken Ashi indicator have disadvantages?
It's a well-known fact that the grail exists only for beginner traders. Along with all the advantages, the Heiken Ashi indicator, unfortunately, also has disadvantages.
First of all, it is the lag already mentioned in the advantages. The point is that lagging signals are valid for a very short time. This increases the risks of using the Haken Ashi indicator on timeframes above H1.
In addition, the Heiken Ashi indicator is difficult to use as an independent system. However, this applies to most technical indicators, and is solved by using not one, but a combination of several indicators.
What trading signals gives the indicator?
Before breaking down the trading signals Heiken Ashi, note that this indicator - it's just a tool with which you can clearly see the current market trading picture.
So, Heiken Ashi indicator gives five key trading signalsto understand the mood of the market:
- White candles without shadows - the trend is upward, has a strong character and will continue in the near future, without the intervention of force majeure events.
- White body and a small shadow - the trend is stable, the market reversal is not planned.
- Red candles without shadows - a strong downtrend, which has a persistent long-term character.
- Red candles with small shadows - the downtrend is drying up, a market reversal is possible.
- Candlesticks (red or white) with a small body and massive shadows (analog of the classical doji pattern) - signal the imminent change in the current trend.
We recommend apply the Heiken Ashi indicator in combination with by oscillatorsThis can be a simple trading strategy, for example MACD or Stochastic. Signals to open positions in such a strategy will be an exit of the oscillator from the overbought/oversold zone in combination with a Heiken Ashi indicator candle, indicating a possible trend reversal.
To summarize, it should be noted that if you learn all the subtleties of applying the Heiken Ashi indicator, you will get a very powerful tool for analyzing the market situation. You will not need to dig through the piles of indicators on websites, because Heiken Ashi is always at hand, in your MetaTrader 4 terminal.