Heiken Ashi Indicator
The Heiken Ashi indicator is especially useful for following a trend over a long period of time and for exiting the market when trends are weakening.
One of the three charting systems used in the Forex market, the Japanese Candlestick is the most common and preferred chart for technical analysis. The candlestick shows the open, high, low and close of each bar and also indicates if the candle is bullish or bearish.
Although this chart is the most preferred, it is prone to many false signals due to the high amount of noise in the market. Difficulties that arise when using Japanese candlesticks are corrected using the Heiken Ashi indicator.
Foundation
The Heiken Ashi indicator is a type of Japanese candlestick that uses an average of 2 periods, making it smoother than a regular candlestick.
In the two charts above, regular Japanese candlesticks often change color from red to blue, which can make them difficult to understand.
Conversely, candles on the Heiken Ashi chart have a more uniform color, staying red in a downtrend and blue in an uptrend.
Because the indicator helps smooth out charts and filter out market noise, it is easier to identify trends and trend reversals.
Trend and trend reversal detection with this indicator helps traders determine whether to hold a position or exit the market.
The Heiken Ashi indicator is especially used to follow a trend for a long time and to exit the market when trends become weak.
How to use the Heiken Ashi indicator
The Heiken Ashi indicator is used by technical traders to identify trends.
Red candles of the Heiken Ashi indicator mean that the trend is down. On the other hand, blue candles mean that the trend is up as shown in the chart below.
In addition, the candle wick of the indicator can be used to determine the strength of the trend.
Bullish candles without a lower wick in an uptrend mean that the uptrend is strong.
Also, bearish candles without a top wick in a downtrend mean that the downtrend is strong.
When the Heiken Ashi candle changes color from blue to red, it is a signal that a downtrend is forming; long trades must be closed while short trades can be opened.
Therefore, when the indicator candle changes color from red to blue, it is a signal that an uptrend is forming; short trades should be closed and long trades are recommended.
Heiken Ashi indicator candles can also be used in the same way as regular Japanese candlesticks to stop reversal signals such as doji, spinning top, etc.
Conclusion
The Heiken Ashi indicator is most suitable for trend detection and its long-term use. Because of this, the indicator is best suited for trend traders.
In addition, this indicator reduces false trading signals in a sideways or choppy market and thus helps traders avoid entering the market in such conditions.
These indicator candles take longer to react, so they are not suitable for scalpers and intraday traders.
The indicator is best used for swing trading and position trading to follow the trend over a long period.
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