Heiken Ashi Trading

``` Heiken Ashi Trading

Introduction

Heiken Ashi (平気値) – often translated as "average bar" – is a unique type of financial chart used to smooth price data and better visualize trends. While originating in Japanese candlestick charting, it’s become extremely popular among Binary Options traders due to its ability to clearly signal trend direction and potential reversal points. Unlike standard candlestick charts that show the open, high, low, and close of a period, Heiken Ashi charts calculate these values based on an average, resulting in a smoother, more easily interpretable chart. This article will serve as a comprehensive guide to Heiken Ashi trading for beginners, covering its calculation, interpretation, trading strategies, and its application within the context of binary options.

Understanding the Heiken Ashi Calculation

The core of Heiken Ashi lies in its unique calculation method. It doesn't directly display the actual open, high, low, and close prices. Instead, it uses an average of these values to create a new set of values for each period (e.g., each candle represents one minute, one hour, or one day). Here's the formula breakdown:

Heiken Ashi Close (HA Close): (Open + High + Low + Close) / 4
Heiken Ashi Open (HA Open): (HA Open (previous period) + HA Close (previous period)) / 2
Heiken Ashi High (HA High): Max(High, HA Open, HA Close)
Heiken Ashi Low (HA Low): Min(Low, HA Open, HA Close)

Let's break down what this means:

1. The Heiken Ashi Close is a simple average of the current period’s open, high, low, and close prices. This is the foundation of the calculation. 2. The Heiken Ashi Open for the current period is the average of the previous period's Heiken Ashi Open and Heiken Ashi Close. This creates a smoother progression of opens, reducing noise. 3. The Heiken Ashi High is the greatest of the current period’s high, the current Heiken Ashi Open, and the current Heiken Ashi Close. 4. The Heiken Ashi Low is the lowest of the current period’s low, the current Heiken Ashi Open, and the current Heiken Ashi Close.

This calculation results in candles that appear different from traditional candlesticks, providing a visually distinct representation of price action. Understanding this calculation is crucial for effectively interpreting the chart.

Interpreting Heiken Ashi Candles

The color and shape of Heiken Ashi candles provide valuable insights into the current trend. Here’s a breakdown:

Bullish Candles (Usually Green or White): These candles indicate buying pressure.

   *   The body of the candle is generally longer than the wicks (shadows).  This suggests strong bullish momentum.
   *   A long lower wick indicates that prices tested lower levels but were pushed back up by buyers.
   *   No lower wick indicates strong and consistent buying pressure.

Bearish Candles (Usually Red or Black): These candles indicate selling pressure.

   *   The body of the candle is generally longer than the wicks. This suggests strong bearish momentum.
   *   A long upper wick indicates that prices tested higher levels but were pushed back down by sellers.
   *   No upper wick indicates strong and consistent selling pressure.

Doji Candles (Small Body, Equal Wicks): These candles indicate indecision. They can signal a potential trend reversal, but require confirmation. Candlestick Patterns often include Doji formations.
Small-Bodied Candles (Short Body, Small Wicks): These candles indicate consolidation or a weakening trend. They suggest a period of equilibrium between buyers and sellers.