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It is with great pleasure to be a participant in this week assignment of professor @reddileep, which he taught about **_HEIKIN-ASHI TRADING STRATEGY_** I can say I understood the class and I have been able to give back based on my own understanding and the research I made. I stand corrected in any way as I might have come short in details of a particular question.
>Define Heikin-Ashi Technique in your own words.
My familiarity with chart types are bar chart, line chart and the Japanese candlestick chart but after reading professor @reddileep homework post, I realise there is another type of chart which is the Heikin Ashi chart, which uses a different form of technique to present price action. The Heikin Ashi will now continue to be represented by HA or the full name.
The HEIKIN ASHI is sometimes called HEIKEN ASHI, which is chart type that looks familiar to the traditional Japanese candlestick chart, but with a different technique that displays price action. The HA in collaboration with the candlestick chart is good to spot trends of the market and predict future price when trading securities. The HA is useful chart technique that analyses trends easier and also make the candles more easy to read.
The trading technique was developed by MUNEHISA HOMMA,many years ago. The developer of HA is a rice merchant from sakata in Japan. which is also known as the father of candlestick.
The word **HEIKIN** in Japanese means **_"average"_** and the word **ASHI** means **_"pace"._** So in combination of the name HEIKIN ASHI means **_average place_** HA can be said as the average pace of price, it is a technique used to seive noise in the market with the help of HA method which uses average price data. With the absence of noise in the market, it generate clear market trend and price movement, it uses an alternate formula based on two period average.
The HA techniques helps trader in identifying when to hold, pause in a trade or when a reversal is going to occur. The HA chart technique is smoother compared to Japanese candlestick which indicates price action regardless of the trend, the HA technique help trader to avoid placing trade in choppy market and it reduces false trading signals in sideway.
So for trend traders, the HA chart technique is best because it's rearranges the display of price which gives confidence to trend traders. Generally as a trader, using the HA technique, traders can decide if it is good to stay in a trade or get out of a trade because the HA are more readable for traders who want to make an entry or exit.
The HA candles in an uptrend is seen in a green colour with an upper wick and in a downtrend, it is seen in a red colour with a lower wick. Wicks can be on both sides which indicates and indecision candles, the colour of the candles are set according to user's preference.
>Make your own research and differentiate between the traditional candlestick chart and the Heikin-Ashi chart. (Screenshots required from both chart patterns)
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<center><sup>image from tradingviews</sup></center>
As seen in the images above, mere looking at the chart, it might look alike to an untrained eye, but no, there is a big difference between both chart, the HA candlestick body has of wick on the lower and upper shadow.
Through the table below, let see some difference between the two candlesticks
JAPANESE CANDLESTICK CHART | HEIKIN ASHI CANDLESTICK CHART
---- | -----
This candlestick changes color regardless of the dorminat trend | This candlestick has the tendency to stay green or red during and uptrend or downtrend,
The current price on the candlestick and the current price of the asset in this chart will surely corresponds | The current price on the candlestick may not match to the current price of the asset
This candlesticks color change more frequently from green to red or red to green which makes it really difficult to read | Consecutive colored candlesticks are displayed more, which makes it readable for traders
In terms of price action the Japanese candlesticks is not smooth | The HA candlesticks is much smoother than the japanese candlesticks in terms price action
The Japanese candlesticks start from the level where the previous candle closes | HA candlesticks starts from the middle of the candle stick before it.
Gaps occurs in this candlesticks chart | There are no gaps in the HA candlesticks chart
>Explain the Heikin-Ashi Formula. (In addition to simply stating the formula, you should provide a clear explanation about the calculation)
Like the Japanese candlestick chart, the HA candlestick has an open, close, high and low. very similar to the Japanese candlestick, just that the open and close are calculated differently.
So the HA has four type of parameter to create a new candlestick in a chart.
### OPEN
The opening calculation of h a candles requires the addition of opening of the previous candle and the close of the previous can be divided by 2
Mathematically,
**_Open =<sup>open of previous candle + close of previous candle</sup>/<sub>2</sub>_**
### CLOSE
The average value between the four types of data or parameters which are the open, high, low and close of the HA candles equals the close of each HA candlestick.
Mathematically,
**_Close = <sup>open + high + low + close</sup>/<sub>4</sub>_**
### HIGH
Whichever is the highest between the open, or the close of the HA candle, also it could be the highest wick, because the HA takes the actual high of the period to calculate the high.
Mathematically,
**_High = maximum of high, open or close_**
### LOW
Whichever is the lowest between the open or the close of the HA candle, it could also be the lowest wick, because the HA candlestick take the actual low of the period to calculate the low.
Mathematically,
**_Low = minimum of low, open or close_**
>Graphically explain trends and buying opportunities through Heikin-Ashi Candles. (Screenshots required)
The HA candle is a trend identification canldestick, the HA candle identify the trend direction with color coded candles.
<center><sup>image from tradingviews</sup></center>
The HA candlestick indicate or signifies a bullish trend when the shadow or wick appears above the body of the HA candles, similarly the wick can also appear below the HA candle, but this indicate a bearish trend of the HA candlestick.
So by observing the trend strength, the HA candles determine the strength of the trend by observing the wicks or shadow.
The buying opportunity tthough HA candles are easier to spot as said earlier that the HA chart makes trend easy to identify.
When the market is not been controlled by buyers or sellers, making the HA candlestick chart indecisive. Traders should be at alert and note, when the market will be clear of the indecision and when a clear direction occurs, traders can make a buy or sell position after a clear train direction.
<center><sup>image from tradingviews</sup></center>
In the screenshot above the doge/usdt pair has been in an indecision market for sometimes until a clear bullish candle with a upper wick which represent a bullish trend and a buy position. To be more cautious about the trade, traders can place the buy order at the opening or the middle of the second bullish candle, similarly in the case of sell opportunity, if a clear bearish candle occurs after an indecision market, it signifies a sell signal.
>Is it possible to transact only with signals received using the Heikin-Ashi Technique? Explain the reasons for your answer.
HA candlestick indicate trend direction but cryptocurrency is a volatile market that changes in price without notification. So during volatility in the market, signal received only with HA techniques might not be reliable, which will in turn leads to loss of investment.
During the classes of some professors in the steemit crypto academy that taught about indicators, I have learnt that no indicator is a hundred percent effective, no strategy/ techniques is 100% perfect. so to be on the safer side, transacting with signal received using HA technique is not possible. It is best to combine one or two indicators to render accurate signals, the combination of other indicators with the HA techniques will not lose the value of the HA techique but we only add value to it. so indicators like exponential moving average(EMA), moving average(MA) are indicators best used to combine with the HEIKIN ASHI techniques.
>By using a Demo account, perform both Buy and Sell orders using Heikin-Ashi+ 55 EMA+21 EMA.
#### Sell entry of FTT/USDT
<center><sup>image from tradingviews</sup></center>
The screenshot above shows the HA chart of FTT/USDT. we can see clearly that the market is in a downtrend because the 55 and 21 exponential moving average are above the market which signifies that the selling pressure is high.
<center><sup>image from tradingviews</sup></center>
I then spot my sell entry and place the stop-loss at the swing high, and my take profit was set, which was later triggered in a 1hour timeframe.
#### Buy entry of DOT/USDT
<center><sup>image from tradingviews</sup></center>
The screenshot above shows the HAchart of DOT/USDT. We can clearly see that the 55 and 21 exponential moving average are below the market, which signifies a buy entry.
<center><sup>image from tradingviews</sup></center>
So, taking advantage of the setup, I placed my buy entry and set my stoploss at the swing low and take profit was triggered in an hour time frame.
>CONCLUSION
HA chart is a trend identification candlestick chart pattern, that identifies trend direction with the use of colours. As useful as it is, just like every other technical analysis tools, the HA candlestick, has some limitations, as such, the HA doesn't show the true price of an asset and also scalper will find it difficult to trade using HA candlestick because it uses or requires two periods of price information which is a long trade setup for short term traders.
**_Regards:-_** @reddileep
