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The Japanese candlestick does a very good job telling traders of the open, high, low,, and close positions of price. But traders need then add external indicators (such as the Moving average or Parabolic SAR) to get the average direction of price. This makes the trading chart cumbersome and full of too many indicators. Thanks to the Heikin Ashi indicator which serves both as to to price chart and indicator.
Good Day beautiful Steemians, I am @hadassah26, welcome to my Steemit crypto academy season 4 week 2 homework for professor @reddileep on Heikin-Ashi Trading Strategy.
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<center><sup>Picture from [canva](www.canva.com)</sup></center>
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>"1. Define Heikin-Ashi Technique in your own words."
The Heikin Ashi indicator which I call the Japanese Candlestick 2.0, is an improvement on the Japanese candlestick, it not only tells of the current market data but also referencing past data(the previous candlestick) to give a better inference on where the market is really heading.
This means the Heikin Ashi has both properties of the Japanese candlestick, and more technical calculations from previous data to give a smoother and easier trend detection chart.
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<center><sup>Fig 1. LTC/USDT Heikin Ashi chart from [Trading view](https://www.tradingview.com/chart/q30edMiv/)</sup></center>
Characterised by its iconic one directional wicks during trends, the Heikin Ashi gives traders a quick idea of where price is heading by averaging the previous candle stick data eliminating noise from the market.
The Heikin Ashi can be found on our trading view by selecting the candle icon at the top right corner and changing it to "Heikin Ashi", description below:
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>"2. Make your own research and differentiate between the traditional candlestick chart and the Heikin-Ashi chart. (Screenshots required from both chart patterns)"
Researching on the differences between the Heikin Ashi and Japanese candlesticks, major options which came up were;
**Smoothness of Candlesticks**
The Japanese candlestick which is quick to have both bullish and bearish candlesticks no matter the trend makes it a little scattered to the eye.
The Heikin Ashi on the other hand has a smoother trend with opposite trend candlesticks only popping up when there is a change in trend, giving a smoother trend.
**Candle Wick Direction**
The Heikin Ashi candle sticks are known to have a consistent one directional candlestick wick during trends, this which majorly differentiates them from the Japanese candlesticks is used by traders to detect the strength of the trend.
**Ease of Reading**
This which is a derivative of the above point is with changing candlestick types on the Japanese candlestick trend regardless, makes it harder for traders(especially newbies) to detect the current trend of the market.
The Heikin Ashi on the other hand has a more straightforward trend with opposite trend candlestick popping up only when there is a change in trend makes it easier for traders to read.
**Faster Price action detection**
The Japanese candlestick is current and only depends on the current information the market is giving, this makes it faster in telling price action.
The Heikin Ashi on the other hand tries to smooth out the price information hoping the market will continue in the current trend. This makes it slower to detect price action which can be disadvantageous to traders.
**Calculation/No calculation**
The Japanese candlestick is totally dependent on the real price action in the market and involves no calculation whatsoever. The Heikin Ashi on the other hand involves some little calculations which can make it hard to draw if done manually.
Below are some of the options highlighted in the LTC/USDT chart.
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<center><sup>Fig 2. LTC/USDT Heikin Ashi chart from [Trading view](https://www.tradingview.com/chart/q30edMiv/)</sup></center>
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<center><sup>Fig 3. LTC/USDT Japnese candlestick chart from [Trading view](https://www.tradingview.com/chart/q30edMiv/)</sup></center>
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>"3. Explain the Heikin-Ashi Formula. (In addition to simply stating the formula, you should provide a clear explanation about the calculation)"
The Heikin Ashi, as a more technical price chart,, has its positions gotten from computing previous data. Below are the calculations:
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<center><sup>Screenshot from [Tradingview](www.tradingview.com)</sup></center>
**Heikin Ashi Open**
The open price of the Heikin Ashi is gotten from adding the open and close price of the previous candle stick and summing them by two.
<center>**`(Previous Candle Stick Open price + Previous Candle Stick Close price)/2`**</center>
**The Heikin Ashi Close Price**
The close price of the Heikin Ashi is gotten by summing the open price, close price, high price,, and low price of the previous candlestick and then dividing them by 4.
<center>**`[Previous(Open price + Close Price+ High Price + Low Price)]/4`**</center>
**The Heikin Ashi High Price**
Here is where the Heikin Ashi is similar to the Japanese candlestick, the high price of the Heikin Ashi is equal to the current highest position of price.
<center>**`Current highest position of price`**</center>
**The Heikin Ashi Low Price**
Here also similar to the Japanese candlestick, the Heikin Ashi Low price is the current lowest position of price.
<center>**`Current Lowest Position of price`**</center>
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>"4. Graphically explain trends and buying opportunities through Heikin-Ashi Candles. (Screenshots required)"
Trends are a consistent direction the market goes within a specific duration of time, at different time frames on the chart.
This basically tells the current dominance in the market, whether **Bullish** (uptrend) or **Bearish** (downtrend).
The main aim of technical analysis is to detect the current trend to be able to stake your money on in order to make profit.
The Heikin Ashi makes trend detection easier due to its consistent same type candle sticks.
From question 2, we see different trends and how the Heikin ashi trend looks different from the Japanese candle stick trend due to its consistent type candle stick.
Here we are going to talk about buying opportunities using the Heikin Ashi candles.
**Sell Opportunity (Start of a Downtrend):**
The first sign of the start of a new down trend in the Heikin Ashi is the bearish Doji (two sided wick) candlestick. This tells that the former uptrend dominance is beginning to lose power and a new trend may be starting out.
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<center><sup>BTC/USDT chart from [Trading view](www.tradingview.com)</sup></center>
This can be better noticed by the cluster of indecisive candles usually at the end of the trend, here traders should have taken profit from the previous trend and be awaiting the start of a new trend. This is noticed by the highlighted blue area in the chart below.
On the start of a new trend, we wait for long bearish candles, with the general gradient of the Heikin Ashi already facing downwards, we can now enter the market on a sell position.
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<center><sup>BTC/USDT chart from [Trading view](www.tradingview.com)</sup></center>
**Buy Opportunity (Start of an uptrend):**
As the down trend, the start of an uptrend is also from the end of a down trend usually with the appearance of bullish Doji candle sticks. This shows that the previous bearish dominance is over and an uptrend is starting out.
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<center><sup>BTC/USDT chart from [Trading view](www.tradingview.com)</sup></center>
With the uptrend starting out, we should notice engulfing bullish Heikin Ashi candle sticks, and more an upward gradient on the Heikin ashi chart in general. This is a good Buying position entry point.
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<center><sup>BTC/USDT chart from [Trading view](www.tradingview.com)</sup></center>
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>"5. Is it possible to transact only with signals received using the Heikin-Ashi Technique? Explain the reasons for your answer."
Using the Heikin Ashi as the only price indicator can be risky and not very advisable because no matter the indicator, traders usually need another indicator for confirmation of their postulation on market direction, but **Yes** the Heikin Ashi can be used as a lone indicator. With its smoothness in trend continuation, the Heikin Ashi can both serve as a Japanese candlestick chart and the parabolic SAR, allowing traders to maximize their stay in a trend and make more profit.
The Heikin Ashi can also serve as a short period moving average, so traders can know the direction of price. With the identification of its dogi candlestick at the end of a trend and the start of another color of sticks, traders can have a clue on the weakness of the previous trend and the start of a new trend.
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>"6. By using a Demo account, perform both Buy and Sell orders using Heikin-Ashi+ 55 EMA+21 EMA."
Placing my demo trades for the sake of limited time in submitting this assignment I will be working with the 1 minute charts for both trades.
I have set my Exponential moving averages 55 and 21, and have set my chart to Heikin Ashi, I will be trading BNB/USD and BCH/USD.
<center>**First Trade (Sell Trade)**</center>
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<center><sup>BNB/USD Screen shot from my mt5 app</sup></center>
Watching the Heikin ashi chart, and using my EMA as dynamic support and resistance, I see the chart has broken the price has just broken the EMA 21 and 51, I watch for the strength of the price and the downward wicks are consistent. I place my trade at $420, and set my stop loss and take profit trade data below:
**Trade data**
**Sell price:** $420
**Stop loss:** $421
**Take Profit:** $419
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<center><sup>BNB/USD Screen shot from my mt5 app</sup></center>
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<center>**Second Trade (Buy Trade)**</center>
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<center><sup>BCH/USD Screen shot from my mt5 app</sup></center>
On this second trade, I watch my Heikin Ashi and Exponential moving averages, the Heikin Ashi has broken the Exponential moving averages upwards, and making a new bull run after its recent retracement. I watch the wicks of the Heikin ashi and they are all going up, I make my buy trade:
I place my trade at $642 and set my Stop loss and Take profit. trade data below;
**Trade data**
**Sell price:** $642
**Stop Loss:** $639
**Take profit:** $644
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<center><sup>Screen shot from my mt5 app</sup></center>
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<center>**Conclusion**</center>
The Heikin ashi price chart and indicator makes trading much more easier and smoother especially for newbie traders.
This indicator which can be used as a standalone indicator for price action is a development on the Japanese candle sticks.
Traders should always try to confirm trades when using the Heikin ashi indicators by other indicators such as the EMA 55 and EMA 21, or proper price action. No indicator is a soothe sayer,
Trade cautiously
cc @reddileep
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