Explaining Heikin Ashi, Guide Part 9Most day traders prefer to use candlestick charts for their analysis, but most have not heard of Heikin Ashi candles.
Heikin Ashi candles have recently gained popularity among daily traders to more easily identify a certain trend.
Candles:
Heikin Ashi
Seeing this:
Can we tell the difference?, Heikin Ashi is made to identify a trend not the movements of the price in specific, there are certain programming to explain but it is not really necessary to learn it. You could say that what it does is take an average of the previous candles and take a way to visualize whether it continues its trend or not.
One of the most obvious differences between Heikin Ashi charts and Japanese candles is the calculation of the opening and closing prices.
Instead of using the open, high, low and close of the current bar to build the bar, Heikin Ashi candles are formed by combining the midpoint of the previous bar with the open, high, low and close. of the current bar.
A green bar means that the average closing price of the previous six bars is in the top 50% of its range, indicating a bullish bias. The opposite occurs with the red bars.
Transcendence of the Heikin Ashi chandeliers
Heikin Ashi charts make candlestick charts more readable for traders who aspire to know when to exit a trade once the trend weakens and when to stay in a strong trend.
They are a modified way of displaying data on your candlestick chart, primarily the function of softening the volatility of a stock or other financial gadgets, which enables traders to produce more complicated trading tactics.
Typical candlestick charts will show how volatile the markets were on a particular candle and the overall trend.
Heikin Ashi charts filter the sound and smooth out the cost action on a chart by displaying values using averages to generate something that looks a lot like the candle.
How to calculate the Heikin Ashi candle
As mentioned above, Heikin Ashi candles are based on current close-open-high-low (COHL) price data, current Heikin-Ashi values, and previous Heikin-Ashi values.
Here's a quick breakdown of how to calculate the Heiken Ashi candle:
The Heikin Ashi close is simply an average open, high, low and close of the current period.
Close = ¼ (Open + Close + Low + Close)
The Heikin Ashi Open is the average of the previous open Heikin Ashi candle plus the close of the previous Heikin Ashi candle.
Open = ½ (Open of the previous bar + Close of the previous bar)
The Heikin Ashi High is the maximum of three maximum points.
High = (High, Open, Closed)
The Heikin Ashi minimum is the minimum of three minimums.
Low = (Low, Open, Closed)
How to use Heikin Ashi candle holders
Now that you know what Heikin Ashi candles look like and how they are calculated, it's time to learn how you can apply them to your trading.
Heikin Ashi's charting technique can be used to spot trend reversals or potential trends. This indicator takes several bars in context and not just one bar.
Limitations of Heikin Ashi
Like any other technical analysis tool, Heikin Ashi is useful but has some limitations or weaknesses.
For example, the candles do not show the exact opening and closing prices.
The candles hide the real information of the value of the asset.
In addition, they require previous data, which does not serve too much for people to trade in the short term too much due to the high risk of this.
This type of non-standard chart is mostly used to verify trends, therefore some indicators such as Ichimoku or Buy And Sell tend to use this type of chart. The problem with this is that Heikin Ashi does not really show the real price of the asset if not an average of it, so it is good to backtest and learn the use of these types of indicators.
Example Buy and Sell:
The Buy And Sell indicator indicates entry and closing of this, but then it continues to rise. Therefore, you need to understand that these indicators really have a great fault. In addition, the best entry would have been in the indicated circle.
Example Ichimoku:
As we can see, ichimoku is a bit more exact about this, but in a way it also has its flaws, ichimoku is an indicator that looks for inputs through moving averages. Mostly the 9-26-52 setting. But it is not recommended to use it in its entirety as a holy grail. It's pretty good, but try to make it a complement to your analysis.
Candles:
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