How to Catch Trends with Heiken-Ashi Candlestick Analysis.

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While we know that the most commonly used chart type is the candlestick chart type, what other chart types do exist? Well, we have the:-

  • Area Price Chart.
  • Bars.
  • Heiken Ashi.
  • And then, of course, there is the Japanese Candlestick Price Chart.

Japanese candlestick charts offer a good way of catching trends in any market, but have you tried Heiken Ashi price charts?

We have dwelt so much on Japanese candlestick charts and given a blind eye to the other chart types which could potentially produce way better results.

In an attempt to explore the other chart types, we shall in this post seek to find out how to catch trends with Heiken Ashi candlestick analysis.

We shall begin with definitions?

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What is Heiken-Ashi?

Heiken-Ashi is a type of price chart which shows a smoothed version of the price relative to that shown by the Japanese candlestick price chart.

We have already established that most traders including yourself have already interacted with the Japanese candlestick price chart. The Japanese candlestick price chart is the most commonly used and the easiest to use of all price chart types.

If you are conversant with the Japanese candlestick chart type then, it makes it easier to understand.

Understand when we say that Heiken Ashi gives a smoothed version of the price relative to that of the Japanese candlestick chart type.

The Japanese candlestick chart is thus the standard candlestick chart whose representation of the price is smoothed by the Heiken Ashi price chart.

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FYI, Heiken Ashi means average bar.

The Heiken Ashi price chart averages and shows a smoothed price compared to that shown by the standard candlestick chart.

Heiken Ashi is likened to the moving average because it averages and shows a smoothed price, just like moving averages.

The difference here is that Heiken Ashi, after smoothing the price, represents it in form of candlesticks while the Moving average represents it in form of a line.

What is Heiken Ashi

Heiken Ashi Calculation Formula.

Wondering how Heiken Ashi is calculated?

Here is the formula applied in the calculation of Heiken Ashi:

  • Heiken Ashi (HA) Open = Average of the Open and Close of the previous Heiken Ashi bar.
  • HA Close = Mean value of the Open, Close, High, and Low of the current Heiken Ashi bar.
  • Heiken Ashi (HA) High = Maximum value from the High, Close, or Open of the current Heiken Ashi bar.
  • HA Low = Minimum value from the Low, Close, or Open of the current Heiken Ashi bar.

It is clear from the above data that the Heiken Ashi Price chart employs both past and current data to smooth the price, just like the moving average does.

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Moving Averages are trend indicators and in a similar manner, the Heiken Ashi price chart can be used to catch trends.

But wait, how you can catch trends with Heiken Ashi candlestick analysis?

I’ll show you just how easy it is to do it.

But before then, let us take a moment to understand how to read and interpret Heiken Ashi price charts first. Understanding this part goes a long way.

Heiken Ashi Calculation Formula.

How to Read and Interpret Heiken-Ashi Price Charts.

Before we can proceed to learn how to catch trends by analyzing Heiken Ashi candlesticks, we must first know how to read and interpret Heiken Ashi charts.

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It’s the only way we can then know what the various Heiken Ashi candlesticks mean.

We will then use the relevant candlesticks appropriately to catch trends while trading.

Here is the simple interpretation by color and structure of Heiken Ashi candlesticks:

  • Red Heiken Ashi Candlesticks are bearish.
  • Red Heiken Ashi Candlesticks without Upper wicks are strongly bearish.
  • Green Heiken Ashi Candlesticks are bullish.
  • Green Heiken Ashi Candlesticks without Lower wicks are strongly bullish.
  • Heiken Ashi Candlesticks with significant upper and lower wicks then a small body are neutral. They may point to price reversal or pause.

Do you now understand how you can read the Heiken Ashi price chart without any struggle? Let us then proceed to learn how you can catch trends with Heiken Ashi candlestick analysis.

How to Read and Interpret Heiken Ashi Price Charts.

How to Catch Trends with Heiken Ashi Candlestick Analysis.

Now that you fully understand how to read Heiken Ashi price charts, we can then proceed to see how to catch trends using the same price chart type.

This is possible by analyzing the Heiken Ashi candlesticks as they appear on the price chart.

I know you are thinking that mastering Heiken Ashi candlestick analysis to the point of knowing how to catch trends is hard.

Well, it’s actually simple to master Heiken Ashi candlestick analysis and it is equally simple to catch trends using them. 

Especially because we have already laid a firm foundation by first understanding what Heiken Ashi price charts are and how to read and interpret them.

Before we proceed any further, note that Heiken-Ashi candlesticks filter much noise shown on a standard Japanese candlestick chart.

This goes to show the general trend of the market relative to what the standard Japanese candlestick chart shows.

Heiken Ashi shows the general market trend by showing consecutively bullish or bearish candlesticks even where the standard Japanese candlestick chart had interjections of candlesticks against the general trend.

Well, what is the much ado for?

Let us proceed to see how you can catch trends with Heiken Ashi candlestick analysis.

Here is how it is done in 4 facets:

  • How to Catch Uptrends with Heiken Ashi Candlestick analysis.
  • Catching Downtrends with Heiken Ashi Candlestick analysis.
  • Catching Sideways Trends with Heiken Ashi Candlestick analysis.
  • How to Catch Trend reversals with Heiken Ashi Candlestick analysis.
  1. How to Catch Uptrends with Heiken Ashi Candlestick Analysis.

Let’s go back to the beginning. This is what we said:

  • Green Heiken Ashi Candlesticks are bullish.
  • Green Heiken Ashi Candlesticks without Lower wicks are strongly bullish.

One green Heiken Ashi candlestick cannot form an uptrend but a number of them occurring consecutively.

Therefore, if the price is trending upwards, there will be consecutive green Heiken Ashi candlesticks.

Further, if the price is trending upwards strongly, then there will be consecutive green Heiken Ashi candlesticks without lower wicks.

Therefore, if many green Heiken-Ashi Candlesticks form consecutively, then such is an uptrend.

It is a strong uptrend if such many green Heiken Ashi candlesticks have no lower wicks and occur consecutively.

A healthy or strong uptrend on the standard Japanese candlestick chart may have minor interruptions of bearish candlesticks.

However, Heiken Ashi filters all that noise to show a perfectly healthy or strong uptrend of all green candlesticks.

That way, you will without any doubt resort to an uptrend if you spot consecutive green Heiken Ashi candlesticks which have no red candlestick interruptions.

As a trader,

What should you do when you spot such candlesticks?

After Heiken Ashi candlestick analysis has without any doubt proved that the market is trending upwards,

Go back to the standard Japanese candlestick chart.

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Then look for the bullish trading signals which you are used to. 

If you spot any, go ahead and enter buy positions with more confidence because Heiken Ashi has just pointed you in the upward general direction of the market.

Heiken-Ashi candlestick Fun Fact

  1. Catching Downtrends with Heiken-Ashi Candlestick Analysis.

Again, I will take you back to what we said during the reading and interpretation of the Heiken Ashi charts.

Here are the facts we established:

  • Red Heiken Ashi Candlesticks are bearish.
  • Red Heiken Ashi Candlesticks without Upper wicks are strongly bearish.

It is clearly not possible for one red Heiken Ashi candlestick to form a downtrend.

Only a number of them occurring consecutively will translate into a downtrend.

For that matter, a market that is trending downwards will have consecutive red Heiken Ashi candlesticks.

Further, if the market is trending downwards strongly, consecutive red Heiken Ashi candlestick without upper wicks will form.

What that means is simple.

If many red Heiken-Ashi candlesticks follow each other consecutively on the chart, then such is a downtrend.

A strong downtrend is shown by many red candlesticks without upper wicks following each other consecutively on the chart.

A healthy or strong downtrend on the standard Japanese candlestick chart may have minor interruptions of bullish candlesticks.

However, Heiken Ashi filters all that noise to show a perfectly healthy or strong downtrend of all red candlesticks.

That way, you will without any doubt resort to a downtrend if you spot consecutive red Heiken Ashi candlesticks which have no green candlestick interruptions.

To trade after confirming the trend direction,

Go back to the standard Japanese candlestick chart.

There, you will look for the bearish trading signals which you are used to.

You can then enter sell positions with more confidence because Heiken Ashi has just pointed you in the downward general direction of the market.

Heiken-Ashi candlesticks

  1. Catching Sideway Trends with Heiken-Ashi Candlestick Analysis.

I will keep on referring you back to what we said when we were learning how to read and interpret Heiken Ashi charts.

That is to show you how easy it is to do it after you have known how to read and interpret Heiken Ashi charts.

Here is your reminder of what we said:

  • Heiken-Ashi Candlesticks with significant upper and lower wicks then a small body are neutral.
  • Such Heiken Ashi candlesticks may point to price reversal or pause.

Note, Heiken Ashi candlesticks with small bodies and long upper and lower wicks occurring consecutively may mean a sideways trend or an area of price congestion.

Areas of price congestion are areas where the price does not move significantly upwards or downwards.

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What follows then, after Heiken Ashi candlestick analysis has hinted at a sideways trend?

How do you proceed to trade such a market?

Realize that profiting from trades placed in such areas is difficult.

Therefore, if you spot a sideways market as shown by Heiken Ashi candlesticks of the manner we have mentioned, you may keep off the market.

If you really have to trade, go back to the standard Japanese candlestick chart and identify significant support and resistance zones.

You can then scalp by buying at support as you exit at resistance and selling at resistance as you exit at the support.

Heiken-Ashi Nutral Zone

  1. How to Catch Trend Reversals with Heiken-Ashi Candlestick Analysis.

Let me remind you what we said when learning how to read and interpret Heiken Ashi charts for the last time. 

We mentioned that…

  • Heiken Ashi Candlesticks with significant upper and lower wicks then a small body are neutral.
  • Such Heiken Ashi candlesticks may point to price reversal or pause.

As such, a market trend nearing reversal is shown by the neutral Heiken Ashi candlesticks with both substantial upper and lower wicks and a small body.

If the market been in a strong uptrend shown by consecutive green candlesticks without lower wicks, then you begin to notice Heiken Ashi candlesticks with long upper and lower wicks and small bodies, then that is it.

That’s an indication of an exhausting trend. The market may soon reverse downwards.

On the contrary, was the market in an all-red consecutive Heiken-Ashi candlesticks without upper wicks a downtrend?

Then, did candlesticks with long upper and lower wicks and small bodies begin to appear? That may mean the downtrend has lost sustenance and may reverse upwards soon.

What do you do next?

Once you notice such neutral Heiken Ashi candlesticks, switch fast to the standard Japanese Candlestick price chart.

See if you can locate standard Japanese candlesticks pointing towards that reversal, which is highly likely so.

You can then trade in the direction of the reversal if the standard Japanese candlestick chart supports the reversal.

Examples.

An example or two won’t do any harm, would they?

Let us say that there has been an all-green Heiken Ashi candlestick uptrend followed by small-bodied Heiken Ashi candlesticks with long upper and lower wicks.

The small-bodied Heiken-Ashi candlesticks with long upper and lower wicks are most likely to correspond to bearish reversal candlesticks such as:

  • Bearish Popgun bar pattern.
  • Evening star.
  • Bearish engulfing.
  • Other bearish reversal candlesticks on the standard Japanese candlestick chart.

The opposite is also true where the Heiken Ashi chart has been showing a downtrend then small-bodied Heiken Ashi candlesticks with long upper and lower wicks begin to form.

Those small-bodied Heiken Ashi candlesticks with long upper and lower wicks are most likely to correspond to bullish reversal candlesticks such as:

  • Bullish Popgun bar pattern.
  • Morning star.
  • Bullish engulfing.
  • Other bullish reversal candlesticks on the standard Japanese candlestick chart.

Having all that in mind, here is a note for you.

If such small-bodied Heiken Ashi candlesticks do not correspond to trend reversal patterns on the standard Japanese candlestick chart, then they may as well mean pullbacks.

Pullbacks are areas where the trend pauses before the price resumes in the direction of the primary trend.

Wrapping Up.

How to catch trends with Heiken-Ashi candlestick analysis?

Not an issue anymore, right? Guess why!

Probably because this post has shed more than enough light in that area, leaving not even a single stone unturned.

If you have never used Heiken Ashi candlestick analysis, go ahead and try it in your demo account.

Until next time,

Kenn Omollo


*Risk warning:

The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.
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