The Heiken Ashi chart can help you to spot both trading periods and ranging periods that you should avoid.
There are two primary trade signals that we can identify through the Heiken Ashi candlestick:
1- with no wicks or very small wicks indicate a strong uptrend and excellent buying opportunities.
2- Small characterized by a small body and big upper and lower wicks signal a potential reversal.
Use strategy on all markets and time frames.
Step #1: Identify a strong move to the upside.
One of the simple ways that we can use the Heiken Ashi is to trade reversal when the candles changed color.
So, the first thing we’re going to look for a or a strong move to the upside.
Note* The Heiken Ashi chart tends to give much more extended and smoother runs of and price candles which is because of how the calculation is used to average out the range of the bar.
Step #2: Wait for the Heiken Ashi bar to change color from (green) to (red)
The first sign that the price is about to turn lower is when we see a red Heiken Ashi candle.
In order for the Heiken Ashi bars to change color, there must to be a strong shift in the order flow and this typically translates into a much more reliable signal than we get when typical price candle change color on a normal price chart.
The way we look to use this feature is simply to implement traditional to locate potential reversal zones with the Heiken Ashi chart.
We use the price action reading skills as a filter to identify a potential trade and then we use the Heiken Ashi chart as the confirmation to go ahead and execute the trade.
Step #3: The first Heiken Ashi candle needs to have a bigger than average lower wick
Long lower wicks can provide an incredible trading signal, especially when using the Heiken Ashi price chart.
You can also wait until you see a Heiken Ashi candle with no upper wick. However, this second approach will cost you some profits left on the table.
The Heiken Ashi trading strategy satisfies all the trading conditions, which mean that we can move forward and outline what the trigger condition for our entry strategy.
Step #4: Sell at the market at the opening of the next Heiken Ashi candle
Our entry method is very simple.
This is a reversal setup, so we’re looking for buying opportunities once everything is in the right place.
Now we can anticipate that a reversal is put in place, and we can go ahead and buy EUR/USD at the opening of the next Heiken Ashi candle.
Step #5: Hide your protective Stop Loss above the first candle high.
One of the really fantastic things about Heiken Ashi candles and what makes them so great for trading is how we can use them to place our protective stop loss.
Because of the tendency of the candles to display continuation, we can go ahead and be really tight with our stops. We can simply place our stop loss above the signal candle high.
Step #6: Take profit after we get a close above a previous candle.
A good Heiken Ashi trade setup will tend to run for much longer than a usual price action setup. So, when we’re trading with Heiken Ashi candles, we really want to exploit this and keep our trades open for longer than we usually would.
Because we’re using such a tight stop loss, we’re only going to need a small price movement to make a good profit on this trade.
Note** the above was an example of a SELL trade using our Heiken Ashi trading system PDF . Use the same rules for a BUY trade – but in reverse.
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