Heiken Ashi (or Heikin Ashi, Heikin-Ashi) is the method of representing the charts using the Japanese technique of the balanced bars. Compared to the traditional Japanese candlestick charts the Heiken Ashi charts are more easily read, provide clearer picture of the market and allow easy trend spotting. What is good about this method is that it’s included into the standard set of the MetaTrader 4 indicators. You can find it there under the Custom submenu. I won’t explain how to calculate those candlesticks here because MT4 does it all automatically for you and you don’t have to worry about how those candles are drawn. Here I will tell you how to use Heiken Ashi in trading the trends. You can see the example Heiken Ashi chart:
As you see, white bodies are the uptrend candles and the red bodies are the downtrend candles. The upper shadows are usually absent on the downtrends and the lower shadows are absent when the trend is going up. There are 5 Heiken Ashi scenarios for trends:
- Trend is normal. Rising white bodies signal ascending trend and falling red bodies signal descending trend.
- Trend is getting stronger. Rising longer white bodies with no lower shadows for ascending trend; falling longer red bodies with no upper shadows for descending trend.
- Trend is getting weaker. Candle bodies become shorter and for ascending trends lower shadows occur, for descending trends — upper shadows.
- Trend consolidation. Small candle bodies with both upper and lower shadows.
- Trend is changing (not accurate signal). Very small candle body with long upper and lower shadows.
That’s all you have to know to trade on the trends successfully if you are using Heiken Ashi charting method. But I also recommend reading some other article on Heiken Ashi if you want to learn more about using it.