Heiken Ashi Strategy – Japanese Samurai Art
Believe it or not, successful traders have the mindset of a Samurai, a legendary Japanese warrior. Our Heiken Ashi strategy is descended from the Samurai culture because it follows the same principles that guided the Japanese Samurai.
Our team at Trading Strategy Guides believes that the Samurai code of honor, known as Bushido, meaning warrior, has superior principles that are extrapolated and applied to trading in any market. Like a warrior, you will need to be disciplined and pay close attention to the conditions in front of you.
One of the unwritten rules of the Samurai code of conduct explicitly states that a Samurai never fears to act. A Samurai lives life fully and wonderfully. Our Heiken Ashi trading system PDF will instill the confidence you need to trade the markets successfully and overcome trading fear.
The Heiken-Ashi technique is simply another form of looking at charts that traders can use to spot trading opportunities. This new revolutionary way to look at charts can be applied to any time frame.
No matter your trading style (day trading, swing trading, trend following) you can implement this trading method to make better decisions. We also recommend learning how to identify the right swing to boost your profit.
First, let's understand what the Heiken Ashi charting technique is. Then we will outline the rules of the Heiken Ashi trading system PDF.
Another benefit is that we’re going to highlight some real trade examples to better understand the best Heiken Ashi PDF strategy.
What is the Heiken Ashi Technique?
The three most widely used price settings are the bar chart, candlestick chart, and line chart. And then there are other less-used charting techniques, such as the Heiken Ashi. The Heiken Ashi chart delivers a deep view of the market. Use it when making trades that require precise entries and exits.
The Heiken Ashi is a charting technique that can be used to read price action and forecast future prices. This is similar to the traditional candlestick charts. Unlike the candlestick chart, the Heiken Ashi chart is attempting to filter out some of the market noise in an effort to better seize the market trend.
Simply put, Heiken Ashi is a different way of displaying the price on our charts.
Here is a typical EUR/USD candlestick chart:
In Japanese, Heiken Ashi means “Average Bar” and it represents the average price, or pace of prices.
The Heiken Ashi candlestick chart helps you spot trading periods and ranging periods to avoid.
Here is the same EUR/USD chart, but once the Heiken – Ashi chart is applied:
As we can see, there is a notable difference between the two types of charts. That’s because the Heiken Ashi candlesticks use some complicated mathematical formula to determine the OHLC prices.
The good news is that you don’t have to be a math whiz to trade the best Heiken Ashi PDF strategy. All you need to do is understand the principles.
There are two primary trade signals we can identify through the Heiken Ashi candlestick:
- Bullish candlesticks have no wicks or very small wicks. They indicate a strong uptrend and excellent buying opportunities.
- Small candlesticks are characterized by a small body, big upper, and lower wicks. They signal a potential reversal.
Now, here is the best way to conquer the market using the Heiken Ashi trading system PDF:
The Best Heiken Ashi PDF Strategy
The best Heiken Ashi PDF strategy can only help you as long as you apply strict risk management rules. Now you know what Heiken Ashi candles are and how they differ from typical price candles. Let’s see how they can be beneficial over traditional price candles.
Heikin-Ashi Candles use three sets of data based on the open and close.
- Price data from the current open high low close.
- The current Heikin-Ashi values.
- The prior Heikin-Ashi values.
Now, before we go any further, we always recommend getting a piece of paper and a pen. Note down the rules of this entry method.
Heiken Ashi Technique Formula
If you hope to use the Heiken Ashi technique, you will likely want to use trading software that can create the charts for you. Because of this, memorizing the Heiken Ashi chart formula may not be absolutely necessary. However, knowing the formula can help you understand why this technique is useful.
Heiken Ashi uses a COHL formula, which stands for “Close, Open, High, Low.” These are the four components that affect the shape, size, and direction of the bars. The formula for each of these components is listed below:
- Close (indicating average price)= (Close + Open + High + Low)/ 4
- Open (indicating the average of the previous bar)= (Previous Open + Previous Close)/2
- High (the highest value)= the highest value of the recent high, open, and close
- Low (the lowest value)= the lowest value of the recent low, open, and close
Once each of these variables has been recognized, you will be able to create a Heiken Ashi chart. Occasionally, some of these values will be equal, which will affect the appearance of the chart as a whole. Adjusting the timeframe will also have a major impact on the shape of the graph. Many day traders prefer to use a five minute Heiken Ashi trading strategy. But using 15-minute, hourly, or even daily timeframes is also possible.
For this article, we’re going to look at the buy-side.
Step #1: Identify a strong move to the downside.
What we’re going to look now is some of the ways that we can combine these Heiken Ashi candles with our traditional technical analysis and start looking for some specific trading ideas.
One of the simple ways we can use the Heiken Ashi candlesticks is to trade reversal when the candles change color.
First, we’re going to look for a bearish trend or a strong move to the downside.
Note* The Heiken Ashi chart tends to give much more extended and smoother runs of bullish and bearish price candles. This is because of how the calculation is used to average out the range of the bar.
In the EUR/USD chart above, we have a double bottom, which is a classic technical set up.
The two lows have formed almost at the same level. This is a traditional bullish reversal signal.
The Heiken Ashi strategy needs to follow one more condition before pulling the trigger.
Step #2: Wait for the Heiken Ashi bar to change color from bearish (red) to bullish (green)
The first sign that the price is about to turn higher is when we see a green Heiken Ashi candle.
In order for the Heiken Ashi bars to change color, there must be a strong shift in the order flow. This typically translates into a much more reliable signal than we get when typical price candle changes color on a normal price chart. Once the color changes, it may be time to make a trade.
The way we use this feature is simply to implement traditional technical analysis and locate potential reversal zones with the Heiken Ashi chart.
We use the price action reading skills as a filter to identify a potential trade. Then we use the Heiken Ashi chart as the confirmation to go ahead and execute the trade.
Step #3: The first bullish Heiken Ashi candle needs to have a bigger than average upper wick
Long upper wicks (upper shadows) can provide an incredible trading signal. Especially when using the Heiken Ashi price chart.
You can also wait until you see a bullish Heiken Ashi candle with no lower wick. However, this approach will cost you some profits left on the table.
The Heiken Ashi trading strategy satisfies all the trading conditions. This means we can move forward and outline what the trigger condition for our entry strategy.
Step #4: Buy at the market at the opening of the next Heiken Ashi candle
Our entry method is very simple.
This is a bullish 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. We can go ahead and buy EUR/USD at the opening of the next Heiken Ashi candle.
This brings us to the next important thing we need to establish for the best Heiken Ashi PDF strategy. Where do we place our protective stop loss?
Step #5: Hide your protective Stop Loss below the first bullish candle low.
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 below the signal candle low.
Last but not least, we also need to define where to take profits.
Step #6: Take profit after we get a close below a previous bullish candle.
A good Heiken Ashi trade setup will tend to run much longer than a usual price action setup. When we’re trading with Heiken Ashi candles, we really want to exploit this. It is important to keep our trades open for longer than normal.
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 BUY trade using our Heiken Ashi trading system PDF. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
Conclusion Heiken Ashi Trading System PDF
Unlike traditional candlestick readings where we look to trade reversals, the Heiken Ashi strategy can help you catch a falling knife. The other major advantage of using Heiken Ashi charts is that they improve your risk to reward ratio. This gives us a much tighter risk tolerance. We also have training on Japanese Candlesticks and How to use them.
The Heiken Ashi technique is one of the best reversal trading strategies. It offers us a smart way to manage our trades. If you're confused by the noise generated by the classical candlestick chart, then you should switch over to a Heiken Ashi forex strategy.
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