Heiken Ashi Forex Trading Strategy is a forex strategy that is based on the Heiken Ashi Candlestick. This heikin ashi forex strategy allows you to stay in with the trend because heiken ashi candlesticks, by their nature, they eliminate all the noise that happens in regular candlesticks.
In this post you will know what is a heiken ashi candlestick and I will also explain the difference between heiken ashi vs Japanese candlesticks as well.
Timeframes: 15 minutes and upwards
Currency Pairs: Any
Forex Indicators: 9&18 Exponential moving averages (or you can use this combination of ema’s: 7 ema & 14 ema , 10 ema & 20 ema or 10 ema & 25 ema
HEIKIN ASHI VS JAPANESE CANDLESTICKS
The Heiken Ashi candlestick chart looks like the real candlestick chart but there’s a difference:
- in a candlestick chart, each candlestick has four different prices which are: open, high, low & close. Each candlestick that is formed after has not relationship with the one the formed previously.
- But with heikin ashi candlestick, each candlestick is calculated using some information from the previous candlestick:
If you wan’t to know more here is a brief detail of how the heiken ashi candlesticks calculated and plotted:
- Open price=average of the open and close of the previous candlestick
- High price=is chosen from the one of the high, open and close price of which has the highest value.
- Low price=is chosen from the one of the high, open and close price which has the lowest value
- Close price=is the average of the open, close, high and low prices.
What that means is that each candlestick is formed on the heiken ashi chart is related to the previous one before it.
Therefore it cause the heiken ashi to delay-just like a moving average indicator.
The advantage of this is that, it smooths out the noise in standard japanese candlestick patterns.
As an example, see the chart below, notice that in the standard candlestick pattern, if you look at this chart, you will not really know if the trend is still strong or not but with the heiken ashi candlestick, you see easily recognize the strength of the trend.
HOW HEIKEN ASHI HELPS TRADERS
If you have trading real money in forex for some time, you will know this: there were times when you closed a trade thinking that the market is going to move in the other direction, only to find out later that it was just a “trick” just to make you panic and you bail out quickly…right?
And did you know what happened next?
Well, the market continues in the original trend or direction for many more pips and if you had not closed out your trade, you could have made a lot of profitable pips from that trade! So now, you are now left scratching your head saying “what the heck did I get out…I should have stayed in that freaking trade!”
Isn’t this frustrating? You bet it is! So how do you minimize this issue or have something tell you not to get out but stay in that trade?
Heiken Ashi Candlesticks to the rescue!
HOW TRADERS USE HEIKEN ASHI CANDLESTICKS
Heiken Ashi candlesticks charts are used in the same manner as a normal japanese candlesticks.
But you see, there is an additional feature of heiken ashi candlestick charts that makes them different from standard candlestick charts:
- the colour of the heiken ashi candlestick is supposed to indicate the overall trend direction of the market
- which means it ignores the intermediate trend direction which is happening. In other words, it avoids the noise .
In summary: heiken ashi candlestick chart patterns allow you to stay with the overall trend by allowing your to avoid the noise or the minor fluctuations of price that is prevalent in a standard candlestick chart!
That’s all there is for you to know about Heiken Ashi Candlestick Charts
THE HEIKEN ASHI FOREX TRADING STRATEGY RULES
- 9 exponential moving average must cross 18 exponential moving average up.
- Price has to run away from the ema lines.
- then wait and watch to see if you see bearish heiken ashi candlestick start forming and heading back to touch the ema lines. If you see this happening, you should sit up and take notice because a buy setup may be just around the corner.
- Your actual buy signal is that bullish heiken ashi candlestick candlestick that forms after that those bearish heiken ashi candlesticks in step 3 has touched the ema line(s)
- Open a buy order at market.
- For your stop loss, place it above the low of the buy entry signal heiken ashi candlestick.
For selling, just do the exact opposite of buying:
- 9 exponential moving average must cross 18 exponential moving average down.
- Price has to run away from the ema lines.
- then wait and watch to see if you see bullish heiken ashi candlestick start forming and heading back to touch the ema lines. If you see this happening, you should sit up and take notice because a sell setup may be just around the corner.
- Your actual sell signal is that bearish red heiken ashi candlestick candlestick that forms after that those bullish candlesticks in step 3 has touched the ema line(s)
- Open a sell order at market.
- For your stop loss, place it above the high of the sell entry signal heiken ashi candlestick.
HOW TO SET TAKE PROFIT TARGETS
- set your profit at set at 2 or 3 times your risk. For example, if you risked 30 pips, then set your profit target at 60 pips or 90 pips.
- another way to set profit target is to identify previous swing highs for profit target for buy orders and previous swing lows for your profit target for sell orders. But here’s the thing: you have to switch to the normal candlestick chart to do this.
Note, for this trade management, you have to switch to a normal candlestick chart to do these below…
The best way to get more profitable pips out of a strong trend is to trail stop your trades using subsequent lower swing highs for sell trades and higher swing lows for buy trades.
This is what I mean:
- If your sell trade is profitable and price has moved favorably, place your trailing stop a few pips behind those consecutively decreasing tops o lower swing highs as the price moves lower.
- similarly, if your buy trade is profitable, place your trailing stop a few pips behind those consecutively increasing bottoms or higher swing lows as price moves higher.
The reason for using the trailing stop this way is so that you give the market room to breathe and so you do not get stopped out prematurely.
ADVANTAGES OF HEIKEN ASHI CANDLESTICKS STRATEGY
- heikin ashi candlesticks eliminate “market noise” and thus allow you to stay with the prevailing current trend.
- which means you can keep your trade going on for quite a while earning you lots of profitable pips as a results.
DISADVANTAGES OF THE HEIKEN ASHI CANDLESTICKS STRATEGY
- This forex trading strategy works when the market trend is really strong but when the its not trending, you may get stopped out with false setups.
- your stop loss may be very large if you use the heiken ashi candlesticks to place your stop loss, so you need to use position sizing to calculate the lot size required to trade to keep your trading risk to the level you are comfortable with. The best way I think is to use the real candlestick to place stop loss instead of heikin ashi candlesticks.
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