Heiken Ashi Strategy is a unique way to use Japanese Candlestick Chart Patterns for Trend Trading. I find it simplifies trading and creates very clear signals.
If you dive deep into Japanese Candlestick Chart Patterns you’ll find it can get overwhelming. While they’re very helpful, they have to be read in the context of the entire chart and they are not to be used for trend trading (as many traders mistakenly think).
I like the Heiken Ashi Strategy because it takes the true power of Japanese Candlestick Chart Patterns and
- Simplifies the signals.
- Is easy to read even for beginners … when you know how, as I’ll demonstrate for you in the video below.
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VIDEO TRANSCRIPT:
Welcome to this video on Trend Trading Stock Market with the Heiken Ashi Strategy. Today we are going to show you how to identify trend with a different type of Japanese Candlestick Chart Patterns. The nice thing is that it really is able to show you trends much more simply and clearly. I simplify down to really 3 patterns.
ONE: BULLISH TREND TRADING OF THE HEIKEN ASHI STRATEGY
The first one is your bullish pattern. I’ve got my bars colored green and red. A lot of times though, the up moves will be hollow and the down moves will be filled in with whatever color. So a bullish candle, a very bullish candle is something like well all of these actually. Where it’s green, or the close is above the open, and there is no wick at the bottom. That’s the key.
But on the Heiken Ashi Strategy bars, when there is no wick at the bottom, then, and its colored green on my case. Then that is a bullish trending up bar. So very important, very cool, very easy to read. You know, just simplifies things. That’s what I like about these is it simplifies things.
TWO: BEARISH TREND TRADING OF THE JAPANESE CANDLESTICK CHART PATTERNS
The second type of bar is exactly the opposite. That would be a red bar like this. It’s going down, and you’ll have wicks at the bottom but no wick on the top. Now these are rather narrow range. So another aspect of this is, what’s the range of the bar. The wider the range, the more trending they tend to be. So these are still pretty narrow range.
Also let me add here that you need to take these into consideration along with other things on the chart. I would never trade the Heiken Ashi strategy of nay Japanese candlestick chart patterns alone. Moving averages, for example here I’ve got this black line, the 15 EMA. This green line is the 50 Simple Moving Average. Whatever indicators that you want to use. Support resistance, trend lines, whatever you use, use this in conjunction with them.
So those are your 2 primary types of bars.
THREE: THE 3RD TYPE OF HEIKEN ASHI STRATEGY
Now the 3rd type of bar is where you have wicks above and below the real body. The real body, if you are not familiar with it, is the colored part of the bar. Here we have, slightly red, here we have that’s slightly green. But we’ve got wicks above and below the real body of the bar. You’ll hear a lot of people say that indicates a trend trading change. I disagree with that.
I don’t always teach the classical stuff, I teach you what comes from my experience. And so I just consider those basically neutral bars. And some of the people who talk about this little more knowledgeably than others, they will say that they are neutral bars, but neutrality comes before trend change.
But I just think it’s a bad idea to put the idea that a trend change is going to occur just because you have neutrality. You can get neutrality like here for example actually. This is a great example of it where the market just takes a little rest and then resumes trend trading up. That’s a very common thing.
COMPARING HEIKEN ASHI STRATEGY BARS WITH TRADITIONAL JAPANESE CANDLESTICK CHART PATTERNS
We have regular candlestick bar chart on the right, same market. And what you see here is that the patterns are very different. So let’s go back and look at the patterns that we talked about. So here is a bullish bar with no wick on the bottom. Well if we go over here, we’ve got a big wick on the bottom. Okay, tremendously huge wick below the real body. So is this signal better than that one? Not necessarily better or worse. Again that is a bullish candlestick pattern. They are just different, you read them differently. We don’t want any wick below here for it to be an up trend.
And you know if you look at this, you can just kind of see that for example in here, might be a little confusing. Oh here is another interesting point. So we’ve got gaps here, we get a gap there, we get a gap here. Now on the Heiken Ashi charts, you have no gaps. No gaps. So if you love to read gaps, then either have a regular candlestick bar next to it, or just don’t trade Heiken Ashi because it’s not going to give you gap signals.
The way I look at it as long as we get a run like this, where there’s no wicks at the bottom, until there. There is really no reason to get out. Okay, and that’s what this is great for. Really works best in trend trending environments. It simplifies the looking at your charts and identifying trends.
DON’T EXIT YOUR TREND TRADING TOO SOON
It creates nice smooth patterns when we get into trends, and for example, here is another thing, you’ll look at something like this over here, and you might, you know you might get scared out of your position here. Whereas over here, it’s still showing, nope it’s still bullish.
This is your first signal that okay, maybe things are weakening here a little bit, and then it resumes, and continues right on back up. So that to me is not bearish, that’s not a reversal signal. I think that’s crazy, when people talk about it. But it’s pausing and markets often do that. Right, they move up and then they pause. They wait. And that reflects the psychology of the people trading the markets is.
The more the market goes, people start to get a little nervous. And they say well, ‘Can this really continue going?’ People have a little hesitation now. Not feeling as certain as before. And we see that reflected in the charts. So charts are the map of the market psychology. And so you see peoples’ mass psychology, their actions reactions mapped on the charts.
TRY IT FOR YOURSELF
So hey, try it. Put it on a chart, look at a few charts, use it with other tools that you are using, and see what you think. See if you think this could be a good addition to your trading.
What do YOU think about this Heiken Ashi Strategy Japanese Candlestick Chart Pattern for Trend Trading?
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