“Trend is Your Friend”, so Heikin-ashi may change your way to look at markets and charts… Legend has it that some big broker came across Heikin-ashi in the summer of 2003 whilst researching about technique and by chance (as it always happens), came across some outstanding charts. The trend was very clear, leaving no room for guessing. This person was witnessing Heikin-ashi charts or modified candlesticks.
It seems that there was no other information available in books or on Internet so he decided to make it available to all traders. In a matter of days it is said that he wrote an article for “Technical Analysis of Stocks and Commodities” (although this has been claimed to have been written by many, no real evidence is available as to the origin of this article or the evidence of the same) which the legend tells, it was published in February 2004 , generating very positive feedback from all corners of the world. Financial sites, technical analysis software companies and traders all over the world discussed and implemented the technique.
This technique was apparently developed by a Japanese trader who made a fortune using it. Until then, it was used only by Japanese traders.
Heikin-ashi is a visual instrument to assess trends, their direction and strength. It is not the Holy Grail of trading, but a great and simple tool to visualize the trend. It is strongly recommended to combine it with technical indicators, patterns, and other trading techniques. The results will improve significantly. How do we calculate modified OHLC values? Here is the answer:
|Modified Open||HaOpen||(HaOpen(prev.bar) + HaClose(prev.bar))/2|
Heikin-ashi (modified candlesticks) follows six simple rules as shown in the table below:
|3||Strong Uptrend||Green candles with no lower shadows|
|4||Strong Downtrend||Red candles with no high shadows|
|5||Consolidation||A sequence of candles with small bodies (Green or Red) and with upper and lower shadows|
|6||Change of Trend||Similar to #5, but only one occurrence. Not always reliable as it may be also part of a consolidation sequence.|
Use these rules with the charts above and you’ll see the difference… Which chart would you consult before trading?
Each trader is continuously looking for that ‘extra inch’ which gives him or her an advantage in the markets. Heikin-ashi offers you this opportunity. Take some time and consult the charts on the main page of our site. It is not difficult to implement this technique yourself.
Take a look at: http://daytrading.about.com/od/indicators/a/HeikinAshi.htm
Standard Candle Chart
Heikin-Ashi Candle Chart
Note:- “In most of the indicators, a working prices should be selected. Please note the all the prices starting with “Ha” refer to Heikin-Ashi prices.”