Heikin-Ashi, also sometimes spelled Heiken-Ashi, means “average bar” in Japanese. The Heikin-Ashi technique can be used in conjunction with charts when trading securities to spot market trends and predict future prices. It’s useful for making charts more readable and trends easier to analyze. For example, traders can use Heikin-Ashi charts to know when to stay in trades while a trend persists but get out when the trend pauses or reverses. Most profits are generated when markets are trending, so predicting trends correctly is necessary.
Combinations of other technical indicators in conjunction with the HA can provide accurate entry and exit points for traders.
The HA is not a replacement to the standard chart, but is a useful indicator to consult alongside your standard as it filters much of the ‘noise’ away from the price action.
Apply a FAST (5,8,5) and slower (default settings) further helps to give precise indication of entry/exit points, looking for crossovers and divergence within the two MACD’s.
Look for larger body candles within the HA which suggest a strong trend in the applicable direction.
Minimal wicks on the lower, predominantly or all on the top alongside larger body candles indicates a , the opposite for .
The educational chart above shows worked examples of the effectiveness of this indicator.
Use higher timeframes first in your analysis to check overall trend of the stock (daily/weekly) and confirm entries using the 4hr timeframe.
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