Heiken Ashi provides a powerful way to analyze market data. Before learning how to use a Heiken Ashi (HA) chart, traders should spend some time to know about the origin and the calculation formula of common parts of Heiken Ashi candlestick. Also knowing how to tell HA and Candlesticks apart will play as an advantage.
The concept behind deploying an HA graph is that it sweeps most of the unessential market noise. And as all those extra noises are filtered, the trader observes the core trend.
Because the Heiken Ashi bars are calculated depending on averages, the bars will have only a tiny wick than a standard Japanese candlestick.
Just like the typical conventional Japanese candlesticks, with a HA bar, you can know about the price momentum. Green Candles without the lower shadow, signals a strong and powerful Uptrend. In contrast, the red candles without upper shadow signal a powerful Downtrend.
Technical speculators use Heiken Ashi mostly to identify two things.
- Market Direction
- Market Strength
So, if one’s objective is to flow with the uprising trend as long as possible, then he may have to learn how to deploy an HA chart. A trader can also learn the basic functionalities by using a demo platform. Visit this link and get a professional demo account so that you can master the use of any tool in a risk-free environment.
Using a Heiken Ashi to Recognize Trend Direction
An HA graph shows a movement through different color candles. A green bar reflects an uptrend while a red-colored bar depicts a downtrend, just like the traditional Candlestick charts.
How to Deploy Heiken Ashi to Recognize the Strength of a Trend
An HA chart presents the strength of a trend by observing the wicks. A meticulous observer will see that there are many green candles without any lower wick.
For the red candles, an opposite scenario happens. Most of them lack the upper shadow.
These bars do not show shadows of any lengths in the opposite direction of a movement. A lack of any shadow means that a speculator is in a robust movement. So, the traders should analyze the Heiken Ashi chart is to perceive the strength of the current movement as wickless or shadow less candles opposite the move. Candles that have no shadows on any of their sides are named “shaved candles”.
So, if any candle has no lower wick, it will be known as shaved bottom. “No Tail” is another name for such candles. Usually such candlestick gives an indication that the buyer or seller is going to get a strong boost from the market.
If any candle lacks an upper wick, it will be known as “No Head”. The other name for such candles is shaved head.
Limitations of a Heiken Ashi Charts
Despite bringing so many advantages for the traders, Heiken Ashi still has some limitations. Let’s get introduced to some of them.
Do not Show True Prices
While conventional Japanese candlesticks are sourced from actual prices, HA candles are not. Because they are mostly averaged and do no show actual opening and closing prices for a particular period.
Vague Right Price Information
This second limitation is quite related to the first one. However, the appropriate closing price doesn’t get displayed on a HA graph. With it, a trader can only observe the average closing price.
Everyone should make sure of the right closing price, and not just the mean value. It can easily be done by shifting back to a conventional Candlestick graph.
Not Responsive for Every Kind of Traders
Since Heiken Ashi charts require different price data from two points, a setup for a trade takes a bit more time to get developed. It is not much of an issue for long-term traders like position traders and swing traders. But it is an issue for the scalpers and day traders.