What is Heiken Ashi Candle? Trading Strategy with Heiken Ashi Candle

2. INSTALLING HEIKEN ASHI CANDLES

In this section, Finance Solutes will guide you on how to install the Heiken Ashi indicator on the MT4 and TradingView trading platforms.

2.1. Installing Heiken Ashi Candles on TradingView

So how can you enable/disable the Heiken Ashi chart on TradingView?

It’s very simple. On the chart of any currency pair, go to the toolbar, click on the candle icon (as shown in the image below), then select the Heikin Ashi chart type.

To disable the Heiken Ashi chart, simply do the same steps and select Candlestick Chart.

2.2. Installing Heiken Ashi Candles on MT4

To install Heiken Ashi candles on MT4, follow these steps:

Step 1: On the toolbar, click the Line Chart icon; the price chart will switch to line format, as shown below:

Step 2: Right-click on the price graph and select Properties.

The chart settings dialog box will appear as shown below:

You need to pay attention to two sections: Background and Line Graph. In the Line Graph box, select None.

The Heiken Ashi candles are by default colored red (for bearish candles) and white (for bullish candles) on MT4. However, you can change these colors according to your preferences.

Step 3: On the toolbar, add Heiken Ashi by following these steps: Insert => Indicators => Custom => Heiken Ashi.

Once the indicator dialog appears, click OK, and you’re all set.

Now, this is the Heiken Ashi chart displayed on MT4:

To remove the Heiken Ashi indicator and switch back to the regular candlestick chart, simply right-click on any Heiken Ashi candlestick on the chart, then choose Delete Indicator. Next, on the toolbar, click the candlestick chart icon, and you’re all set.

Additionally, you can also set up Heiken Ashi on your mobile device (Heiken Ashi mobile) in a very simple way, similar to how you would do it on your computer.

3. HEIKEN ASHI 2-CANDLE REVERSAL PATTERN

Just like Japanese candlesticks, Heiken Ashi candles also have reversal patterns for trading signals.

3.1. Heiken Ashi 2-Candle Bullish Reversal Pattern

Below, Finance Solutes summarizes some common 2-candle bullish reversal patterns that traders often encounter on trading charts:

The pattern appears after a strong downtrend:

1. The first Heiken Ashi candle is a strong bullish candle with no lower wick; the second candle is also strongly bullish with no lower wick.
2. The first candle is a Heiken Ashi Doji (which can be either bullish or bearish); the second candle is strongly bullish with no lower wick.
3. The first candle is a strong bearish Heiken Ashi candle (with or without a wick); the second candle is a strong bullish candle with no lower wick.

3.2. Heiken Ashi 2-Candle Bearish Reversal Pattern

Here are some Heiken Ashi 2-candle bearish reversal patterns that traders should be aware of:

The pattern appears after a strong uptrend:

1. The first Heiken Ashi candle is a strong bearish candle with no upper wick; the second candle is also a strong bearish candle with no upper wick.
2. The first candle is a Heiken Ashi Doji (which can be either bullish or bearish); the second candle is strongly bearish with no upper wick.
3. The first Heiken Ashi candle is a strong bullish candle (with or without a wick); the second candle is a strong bearish candle with no upper wick.

4. HEIKEN ASHI METHOD IN FOREX

Thanks to its averaging properties, the Heiken Ashi indicator works best for identifying and confirming trend signals. Moreover, it makes it easier to recognize price patterns.

4.1. Identifying Trends

With the Heiken Ashi indicator, identifying trends becomes incredibly simple due to the unique characteristics of the candles that form the trend—something that traditional candlestick charts cannot achieve.

In an uptrend, the number of bullish candles appears overwhelmingly and consistently; bearish candles are rare, and sometimes no bearish candles appear if the uptrend is strong. The bullish candles forming the uptrend generally have long upper wicks and very short or no lower wicks.

You can observe a real-life example on the EUR/USD daily chart. Here, bullish candles are green, while bearish candles are blue.

As observed, in a downtrend, green candles only appear during market retracements, while during the declines, the number of blue candles always dominates.

The consecutive blue Heiken Ashi candles in a downtrend usually have no upper wicks or only very short ones.

4.2 Providing Buy/Sell Signals

Buy Signal

When the chart shows a series of (at least 3 consecutive) bullish Heiken Ashi candles with long bodies, long upper wicks, and short or no lower wicks, it indicates that the market is in an uptrend and will likely continue to rise. This is a good opportunity to enter a Buy position.

Sell Signal

When a series of (at least 3 consecutive) bearish Heiken Ashi candles appear with long bodies, long lower wicks, and short or no upper wicks, it indicates that the market is in a downtrend and will likely continue to fall. This is a good opportunity to enter a Sell position.

4.3 Providing Reversal Signals

The Heiken Ashi candlestick pattern that provides reversal signals is the Doji candle. The characteristics of a Heiken Ashi Doji are similar to the Doji candle in a traditional Japanese candlestick chart – it has a short body (almost a straight line) with long upper and lower wicks.

When a Heiken Ashi Doji appears during a trend, it indicates that the market is indecisive. Two possibilities can occur:

1. The market is temporarily resting before the main trend resumes.
2. The dominant side’s momentum is weakening, creating an opportunity for the opposing side to enter the market, which could lead to a trend reversal.

In the image above, after the Doji candle (1) appears, the price trend continues; meanwhile, Doji candles (2) and (3) appear and result in a trend reversal.

4.4. Better Identification of Chart Patterns

Thanks to characteristics such as dense candles, closer proximity; fewer lower wicks in an uptrend and fewer upper wicks in a downtrend; and the removal of “noise,” the Heiken Ashi chart helps identify better chart patterns. Among them, the Wedge and Triangle patterns are the two most frequently appearing patterns on Heiken Ashi charts.