Most traders use the japanese candlesticks for trading. These candlesticks do provide some really valuable information but, the interpretation of these candlesticks becomes very subjective.
This means that my interpretation of a particular candle could be vastly different from your interpretation. This subjectivity is something that scares new traders.
This is where the HEIKIN ASHI comes into the picture. HEIKIN ASHI is a charting technique just like candlesticks. However, it is a lot more simple in this article.
we will understand how the HEIKIN ASHI candlesticks work and we will also learn a trading strategy using the HEIKIN ASHI charts. But before all to be processed must follow me to grab up new trading skills and effective strategies.
How to "Heikin Ashi Candlesticks" calculated
The open of the Heikin Ashi candle is calculated by calculating the open and the close of the previous candle.
In other words, the open of the candle is right in the middle of the body of the previous candle, the close of the candle is calculated by the average of the open.
High low and close of the current candle, now the high of the candle is the same as the high of a japanese candle.
Similarly the low of the Heikin Ashi is the same as, the low of the japanese candle. 
Here is how the heiken ashi chart differs from the candlestick chart in this chart here. we can see that the stock is in a downtrend. Now on the candlestick chart, we see that even in a strong downtrend like this.
There are five to six green candles. While the trend here can be spotted in hindsight. It will become very difficult to see the trend in real time. These green candles tend to confuse us.
On the other hand if, we look at the Heikin Ashi chart. We can see that the candles stay red for the whole downtrend. This shows a continuity of the trend. The trend can be clearly spotted and the chart is a lot more cleaner.
Now let us look at the different types of hiekin ashi candles.
Uptrend
We see green candles with very less or no wicks on the downside. This indicates that the trend is upwards and there are virtually no sellers in the market. These candles represent strength in an uptrend.
Downtrend
When the uptrend becomes weak the green candles start to have lower wicks. These which show that sellers are entering the market. Another thing to notice here is that the bodies of the candle also become smaller again this also shows that the uptrend is becoming weaker. Similarly in a downtrend we see red candles with very minimal or no upper wicks.
These candles show that there are a large amounts of sellers in the market and no opera which show the absence of any buyers. This shows that there is a strength in the downtrend. When the downtrend becomes weak the red candles start to have upper wicks. These which show that buyers are entering the market.
Similarly the bodies of the candle also become smaller again, this also shows that the downtrend is becoming weaker.
Dogi
Lastly, there are these Doji candles that sometimes appear on the chart they generally form at the top or bottom of the move. These candles indicate that the momentum of the previous move has been completely lost.
Hence, this gives a signal that a reversal may be on the cards reversals don't occur after every doji. The doji sometimes can indicate a temporary pause in the trend. The trend can again resume as it happened here.
Reading and understanding the heikin ashi candles is fundamental to our strategy.
Now that we have understood the types of heikin ashi candles. We can focus on the strategy, our strategy focuses on capture impulsive moves in the direction of the trend.
Our goal is to identify pullbacks and enter when the price resumes in the trend. To trade with this strategy, we first need to identify the trend of the market. We will find the trend by plotting a moving average.
Moving average is a line that represents the average price of the asset over a specific period of time. For instance, if we are using a 10 period moving average, it will show us the average close price of the last 10 candles.
Different moving averages give us different trends. for instance, a 20 or 50 period moving average will give us the short term trend. Same as 100 period moving average will give us the medium term trend and a 200 period moving average. For a long-term investor the 200-period moving average will be suitable. While for a day trader the 20-period moving average will be suitable.
Trading strategy
The strategy discussed in this article will work on any moving average.
But for now the sake of this article, we will use a 100 period moving average. When the price is above the 100 period moving average.
we will consider the price in an uptrend and we will only look for buy setups. Similarly, if the price is below the moving average, we will look for sell setups. This is how our buy setup will look.
We have two Heikin Ashi candles here, as you can see both of these candles are green and have no wicks on the downside.
This indicates that, there are no sellers present in the market. it is a very bullish sign. when there are two candles with no wicks on the downside. it is a clear sign of buyer's dominance.
The important thing here is that, we want to see these two candles to appear right after the pullback. So, the first two green candles that appear after the pullback should be these two candles.
Now let us look at the sell setup here, we have two red Heikin Ashi candles. As you can see both of these candles have no upper wicks.
The absence of these wicks indicates a strong dominance of sellers in the market. Here is a trade example here, we can see that the price is trading above the 100 period moving average. Hence we will only look at buying, we first need to wait for a small pullback.
we can easily identify as a series of red candles appear here. Now we will wait for our buy setup to appear. Here is our buy setup, here we have two green candles without any lower wicks. These candles indicate that the buyers have gained control over the market after the short pullback.
After this trade, setup appears we can place a buy order above the upper wick of the second candle and we can keep our stop loss below the first candle for targets.
We can take profits at two is to one risk to reward ratio or we can exit at the nearest resistance.
Here is an example of a sell trade here we have the ETH a five minute time frame. We can clearly see that the price is trading below the 100 period moving average.
Hence, we will only be looking at sell setups. First, we need to wait for a pullback.
The pullback occurs here because of the Heikin Ashi charts. We can clearly see this pullback as a set of green candles appear now, we wait for two red candles without any upper wicks.
Here are the candles that we want to see after the appearance of these candles. We will sell the stock just below the low of this candle. We will keep our stop loss above the high of these candles for exits. We can exit at the near resistance or we can exit at the two is to one risk reward ratio.
That's all about "HEIKIN ASHI STRATEGY". I hope, you learned about something new and also enjoy the reading journey. Thanks ??.
Disclaim !
This is not a kind of financial advice. You can better care of your money. Because trading is like a war. Where you make yourself decision.
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