Trading like a Pro with Heikin Ashi

I am a big fan of Heikin Ashi (HA) candles! I think they are among the most powerful candles one can use.

If I were asked to trade a raw chart without any indicators or math or anything like that, I could do it with a Heikin Ashi chart. If you follow me, you will probably have seen a lot of my tutorials and education on the use of Heikin Ashi candles, as well as some strategies I have developed using Heikin Ashi.

I wanted to take the time to give a crash course, in writing, on the key concepts of using HA to trade that can be quickly applied and implemented. So let’s get into it, we will start with the foundations and then get into the advanced stuff.

Basics: Identifying Trend Starts and Stops

Before doing anything else, you need to be able to identify trend starts and stops. With HA candles, it is super easy. What you need to look for is 2 consecutive flat bottom or flat top candles on whichever timeframe you are utilizing. Let’s look at some examples of the start of bullish trends on the 1 hour, using NQ1!:

In the chart above, you can see the start of various bullish and bearish trends on the 1 hour. Once you have identified the start of the trends, you can then use these candles to draw support and resistance levels.

When drawing support and resistance levels, start from the first, flat top or flat bottom candle, like so:

If we do this on various trends on NQ on the 1 hour, we can start to see how these act as key support/resistance levels:

PRO TIP! When drawing support and resistance, avoid redundant support and resistance levels. You will notice in the chart above, The resistance level at 1528, the support level at 15303 and the resistance level at 1534 somewhat overlap (this is good, this tells you the HA is working properly to identify areas of trend starts/stops). We can simplify this by 2 ways.

Way #1 is by removing the redundancies and just leaving 1 area:

Way #2 is my preferred way and simply involves drawing a support box or “zone”:

This also works well on the daily timeframe as well:

And again, we can simplify this by drawing boxes on the closer proximity lines as such:

Identifying Trend Reversals

The one thing that is great about HA candles, is I personally find them much easier to:

a) Identify impending trend reversals and
b) Identify the likely pull-back range of the trend reversal.

How do we do that? Well, we need to pay attention to the wicks on the HA candles. Let me show you some examples of some wicks along with the terms I have assigned to them and what they mean:

#1 Stagnation

Stagnation occurs when wicks are equal height. In general, you should not see a wick that wicks higher or lower than the stagnation. Below is an example and explanation of stagnation:

The chart above shows you an example of stagnation. To clarify, I will show you examples that do not fit the stagnation definition:

What does Stagnation mean?

Stagnation means that we will see some slight pullback, but generally not below the previous low that lead to the stagnation. In the chart with the example, you can see I labelled the first low as “A”. This will be your reference range. Its simply identifying the lowest low that was made prior to the stagnation pattern forming. Stagnation generally means we will not go below that low (if bearish). If it is a bullish pattern, it means that we will pullback, but it will not go to the previous low (start of the uptrend).

Here is an example of a bullish stagnation pattern:

Stagnation is generally a BULLISH indication.

#2 Bearish Ascending Wicks

Bearish ascending wicks, as displayed in the example above, are very telling. Perfect ones are hard to come by, but if you are lucky enough to find one, it does tell you what you can expect quite reliably!

The defining characteristics of bearish ascending wicks are a cluster of 3, bullish candles with each proceeding wick proportionately higher than the previous:

What do Bearish Ascending Wicks mean?

Well, as the name suggests, this is a bearish reversal. Why they are bearish is because these wicks are telling us that the ticker is about go lower than the start of the current uptrend.
We already know how to identify the start of uptrends and downtrends. So we need to look for the start of the current uptrend that lead to these bearish wicks forming. In this case, it is here:

What the bearish ascending wicks are telling us, is that we can expect to move to and below the start of this uptrend. We can see that this was indeed the case:

Let us look at another example:

This one is a bit messier, but I wanted to show that it does work, even when the setup is not the most pretty. And let’s take a look at one more:

It works really well, but like I said, they are tough to find!

#3 Bullish Descending Wicks

Bullish descending wicks are the exact opposite of the bearish ascending wicks. You have 3, consecutive descending wicks of declining size.

These signify a likely continuation to the upside after some pullback. How high? Higher than the highest wick. So in the above example, we would draw a trendline from the highest wick as reference:

And let us find another example:

These patterns also repeat on the bottom wicks, too, but they are inverted. So let us cover those next.

#3 Bearish Descending wicks:

Bearish descending wicks are the inverted bullish descending wicks that we find on the top of uptrends. We find bearish descending wicks at the bottom of downtrends. These signal a continuation down.

How low?

Lower than the lowest of the three wicks:

Let’s look at another example:

Then, we have the other inverse:

#4 Bullish Ascending Wicks

These signal a bullish reversal and a higher high than the start of the previous downtrend. How do we find the high to reference? We need to find where the most recent downtrend started. So take a look at the chart above and see if you can identify where the trend started. Then, check below where I will give the answer:

You would also be correct to say that the trend started here:

We can simply simplify this by drawing a box:

Let’s look at one more example:

Here is a tiny one:

PRO TIP: Here is a special case. In the case below, we are in an uptrend already and the bullish ascending wicks simply signal a trend continuation. In this case, for reference, you can draw a trendline from the peak of the highest wick leading up to the ascending wicks:

Concluding remarks

And that concludes today’s lesson on using HA candles to trade!

This provides you with some fundamentals of how to use them to identify support and resistance, as well as identify trend changes. Now, its important to remember, these trend change identification strategies don’t work 100% of the time. Sometimes they fail. But they work frequently enough, especially on the indices, that I do rely on them quite a lot.
At the end of the day, no method is perfect, but I find the HA approach to be one of the more rigorous approaches to support and resistance plotting and trend identification.

Remember, these rules apply to all timeframes, including the smaller timeframes, so you can use these strategies and rules on the smaller timeframes. I personally use them on the 5 minute frequently.

I will link some of my other HA based tutorials below. Otherwise, I hope you learned something and leave your comments/questions below and suggestions below!

Safe trades!

Comment:

I didn't include them in the main write up, but here are some examples of HA patterns on the smaller timeframe. One of which I used today on SPY :

SPY

QQQ :

Comment:

I'm shocked I haven't got this question yet, but in anticipation of it, here's the answer:

Yes, it works on BTC!

BTC on the weekly:

BTC on the Daily: