Heiken Ashi indicator is a trading tool that is unique and different from other indicators because its shape is similar to a candlestick. Unlike most indicators that display lines or histogram curves.
Although it seems that traders rarely use this indicator, this tool is quite interesting to learn more about. As the name implies, this indicator takes words from the Japanese language.
Through this article, we will find out more about the Heiken Ashi indicator.
Contents
What is Heiken Ashi Indicator?
Heikin-Ashi is basically an extension of the candlestick chart. Therefore this indicator has a shape similar to a candlestick chart.
However, the appearance of this indicator is formed from certain formulas or algorithms that make it slightly different from candlesticks. For some traders, Heiken-Ashi is believed to display even more accurate movements.
Similar to candlestick charts, Heiken Ashi also displays OHLC prices (Open, High, Low, Close).
But if you look closely, the Heiken-Ashi candle shadows appear shorter (even not at all). This is different from candlestick charts in general. Apart from that, the Heiken-Ashi chart will also not display a striking gap like a candlestick chart in general.
What does Heiken Ashi mean?
The Heiken-Ashi indicator takes its name from the Japanese language. Heiken means balanced or average and Ashi means feet.
Or this is also interpreted as the average bar in Japanese. The Heikin-Ashi indicator can be used in conjunction with candlestick charts when trading to analyze market trends and predict future prices.
The Heiken Ashi indicator is useful for making candlestick charts easier to read and trends easier to analyze. For example, traders can use the Heikin-Ashi chart to know when to stay in a hold position while the trend is still there, and can also exit when the trend stops or reverses.
Heiken Ashi for traders who understand it is useful to predict the trend correctly.
How is Heiken Ashi calculated?
Although the Heiken Ashi indicator displays OHLC prices like Japanese candlesticks, in its formula it uses a different algorithm, by modifying the candlestick chart with a certain formula. The following is the formula for calculating Heiken Ashi.
Open = (Previous Heiken-ashi candle open + Previous Heiken-ashi candle close) / 2. Close = (Current candle's open price + current candle's close price + current candle's highest price + current candle's lowest price) / 4. High= the highest value between the current High candle, Open Heiken-Ashi, or Close. Low = the lowest value between the current High candle, Open Heiken-Ashi, or Close Heiken-Ashi.
Heiken Ashi construction
The construction of the Heiken Ashi is similar to that of a regular candlestick. Only the formula on each bar makes the difference. The construction of Heiken Ashi also depends on the selected timeframe. It will display different views between timeframes.
Heiken Ashi bar down can be adjusted according to user settings. For example, red for the bar up and white for the bar down. Setting the color of the rising bar and falling bar will make it easier for traders to analyze the trend.
What is Heiken Ashi smoothed?
Heiken Ashi Smoothed basically uses moving averages. That’s what distinguishes Heiken Ashi regular from Heiken Ashi Smoothed.
And again if you use a regular Heiken Ashi, it requires adjustment because this indicator blends with the candlestick. While the Heiken Ashi indicator looks like a moving average. Below image displaying Heiken Ashi smoothed MT4.
Heiken Ashi Smoothed indicator
The picture above is the appearance of the Heiken Ashi Smoothed indicator. You can download this indicator for free on MQL5, then copy the mq4 file to the indicators folder on the MT4 platform.
How to instal Heiken Ashi indicator MT4
Heiken Ashi smoothed is not available on the default MT4 platform, except for the regular Heiken Ashi only. For that, the first step is to download the mq4 indicator file or zip file. If you download a zip file then you need WinRAR to extract the file to the MT4 indicator folder.
Furthermore, to display the indicator in the navigator window you can right-click and click refresh. A few seconds later the indicator that you just copied appears in the indicator list.
Then double click Heiken Ashi Smoothed to call up the chart.
MaMetod 1 and 2 are the moving average settings selected, and MaPeriod 1 and 2 are the number of bars used for the first moving average calculation.
You can adjust the MA settings to your perspective. After that click ok. So Heiken Ashi smoothed has now appeared on a separate mt4 platform with prices or candlesticks.
To read Heiken Ashi Smoothed, if the price is above Heiken Ashi, it indicates a bullish trend. Conversely, if the price is below the Heiken Ashi Smoothed Indicator, it indicates a bearish trend.
How Heiken Ashi works?
Heiken Ashi regular indicators are indicators that are placed at candlestick prices in general. When the user plots the indicator it may be annoying because the display becomes less clear.
Some traders who prefer to use candlesticks in their analysis, may not like this indicator because it is considered disturbing. But traders can outsmart it if they want to monitor price charts and Heiken Ashi in different windows.
Here are the steps.
- Click “Window” on the main menu Metatrader 4 platform then click “Tile Horizontally”. Don”t shocked it will be like this.
- Click create a new chart on the particular pair you want to analyze. For example, USDJPY will bring up a new chart, on your platform. Now the chart will be like this.
- Click create a new chart again on the same pair, in this case, it is USDJPY. Then adjust the view by dragging the sides of the chart to get the appropriate view.
- Right-click on the second chart and click “Properties” or press “F8” to shortcut.
- On the “Common” sub-menu, change from Bar Chart to Line chart, then click Ok. Then in the “Colors” sub-menu go to Line Graph and select “None”. The display will be like this.
- Add the Heiken Ashi indicator on the second chart and adjust your settings. Then you can use the candlestick on the top bar and the Heiken Ashi indicator on the bottom bar.
How are Heikin Ashi candles formed?
The formation of Heiken Ashi is based on a different algorithm calculation with Japanese candlesticks. The main difference appears in the calculation of the opening and closing prices.
The Heikin Ashi is formed by combining the midpoint of the previous bar with the open, high, low, and close of the current bar. The white candlestick indicates bullishness, and the red candlestick indicates bearishness.
The shadow of the candlestick is formed by the difference between the low and the high relative to the close. The bullish shadow color is white and the bearish shadow is red.
However, these colors can be changed according to user preferences. So the explanation of the color above is not absolute.
Does Heiken Ashi repaint?
Heiken Ashi is a no repaint indicator. After the Heiken Ashi candlestick is formed, it will not change again as in general repaint indicators.
However, no repaint indicator does not mean that it provides better signaling than indicator repaint. So it is important for traders to understand that the dynamics of prices with volatility will be a risk in itself. Heiken Ashi can help traders find trend direction more smoothly.
How to Read Heikin Ashi candles?
How to read Hiken Ashi indicators is similar to how to read Japanese candlesticks. Traders distinguish bullish and bearish candles by the color of the Heiken Ashi bars and the shadows they form.
In the example above, the bullish candle is white and the bearish candle is red. When you hover over one of the Heiken Ashi bars, a High/low price will appear, which provides information on the high price for the bearish candlestick and the low price on the bullish candlestick.
This High/Low value can be used by traders to find a safer entry point during a bullish or bearish trend.
Where to get Heikin Ashi charts?
You can change the Japanese candlesticks using the Heiken Ashi chart by first replacing the candlestick chart with a line chart then in the properties in the Line Graph select None as described above.
With the Heiken Ashi indicator, the candlestick display becomes more average and smoother. To find the Heiken Ashi indicator, it is in the custom indicator, in the indicator list. Meanwhile, to get a free Heiken Ashi Smoother, users can download it on MQL5.
How to use Heikin Ashi
The main function of Heiken Ashi is to filter noise because Heikin Ashi is the result of the average price, the candle will have a smaller shadow than a regular candlestick chart.
There is also no gap on Heiken Ashi, this is different for Japanese candlesticks where sometimes gaps occur. The smaller the shadow of Heiken Ashi, the indication that a strong trend is taking place.
Using the Heiken Ashi indicator to make it easier to add a trend line by pulling from low to low in an uptrend market and high to high in a downtrend market.
The low-risk entry method is to wait for the price when it approaches the trend line. It can also be used to identify a breakout in a trend. If the price manages to break the trend line, it may be a reversal signal.
Heiken Ashi entry exit strategy
Exit strategy using Heiken Ashi essentially depends on each trader. There are various approaches to exit strategies, but for the set and forget strategy the trader sets the target based on the average price in the time frame.
Some traders may use the oscillator indicator to find overbought and oversold. Or use Fibonacci retracement ratios to determine targets. The exit strategy preference with Heiken Ashi does determine the final outcome of a trading transaction.
You can calculate the profit and loss ratio with the Heiken Ashi exit strategy, for this purpose using a demo account is safe from risk. Demo becomes the best backtest place.
Heiken Ashi’s exit strategy can also look at the potential for a trend to end. This is by reading the price patterns that form when the trend starts to weaken and a reversal appears.
Heiken Ashi reversal patterns
Heiken Ashi can also be used to predict reversal patterns. This is by looking at the formation of a bullish or bearish candlestick after the trend has formed and has started to weaken.
A downtrend or an uptrend is not always a straight-in without a reversal. When the trend starts to weaken, Heiken Ashi shows a horizontal formation or a long shadow. That became an early indication of a reversal based on Heiken Ashi.
When this formation appears, traders will pay attention to orders. This is an exit signal where traders can take profit. And then prepare for the next trade, but it is important to wait for this formation to finish.
Is Heikin Ashi good for scalping?
Basically, Heiken Ashi can be used on all timeframes, including the short timeframes that are widely used by scalping traders.
However, the use of Heiken Ashi for scalping is considered less suitable because Heiken Ashi does not show the current actual price due to the formation of high and low using a certain formula or algorithm.
Is Heikin Ashi good for day trading?
The use of Heiken Ashi good indicators for day traders makes more sense.
Because this indicator reduces the noise of a trend. In an uptrend market, when a Japanese candlestick forms a bearish color it may confuse traders because they will think the trend is over.
This condition does not occur in the Heiken Ashi indicator. As an uptrend, bearish candlestick colors appear less frequently on candlesticks. Identify the weakening trend by looking at the lower candlestick bar and the long shadow on the bullish candlestick.
As the chart above on the left candle is a Japanese candlestick and the right candle is the Heiken Ashi indicator. We can see the Japanese candlestick five times changes colors candle. And when using Heiken Ashi only one time changes colors candle.
Heiken Ashi Advantage and disadvantages
There are always advantages and disadvantages to a trading tool. Likewise with Heiken Ashi.
Advantage
- The Heiken-Ashi indicator makes the appearance of ordinary candlesticks more attractive, by providing a better picture and reducing noise.
- Heiken-Ashi can be applied to all available technical analysis systems.
- Can be applied in all timeframe.
Drawbacks
- The Heiken-Ashi indicator gives lagging signals. However, this is not an absolute drawback, because the slow signaling of the indicator, significantly reduces the number of false signals and can prevent false Opens.
- Another drawback is that Heiken Ashi is not suitable for scalping because it does not show the actual price, this is because it uses an algorithm to calculate OHLC.
Conclusion
The Heiken Ashi indicator may be rarely used by traders, but this indicator is believed by some traders to provide smoother signaling than the Moving Average indicator.
Its unique shape and blend with the price candlestick make this indicator different from the others. For backtest implementation in trading, you can use a demo account so it is risk-free.
Note: This article is for informational purposes only and does not constitute investment advice. Forex, CFD, and crypto markets are risky. Each investor is responsible for their investment.
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