Heiken Ashi Indicator

For market traders, having a plan and a system is a critical part of your trading portfolio success.  Without a plan and a means to analyze the plan’s progress, the return on your stock investments can be highly erratic and unpredictable.  But is there a way to better manage and predict stock performance that is consistent and reliable?  The Heiken Ashi Indicator is a proven method that can truly help investors of all types to better manage their stocks and have a more reliable predictor of stock performance.

In order to determine if the Heiken Ashi Indicator is right for you, a review of what this indicator does and how it can be used is in order.  There are different types of charts that can be used to look at trends and patterns such as bar charts, line charts, and candlestick charts.  The Heiken Ashi Indicator is a type of chart that provides a more accurate detail.

Heiken Ashi is the Japanese term for “average bar”, and can be defined as a type of candlestick chart that recalculates the standard metrics that are used with routine candlestick charts.

Typical candlestick charts are calculated using the open/high and low/close metrics that are commonly found when evaluating stock trends.  Heiken Ashi Indicators, on the other hand, also factors the previous price levels from prior candles to determine the new metrics.  Through this technique:

  • a better representation of the current market is provided
  • an improved indicator for the strength or consolidation of the market is provided
  • a way to remove the fluctuations and variances found from nominal price actions is represented
  • a reduction in the “noise” that can distort the underlying trends

When reading the Heiken Ashi Indicator, the size or length of the candlesticks represent the strength of the market, while smaller or shorter candlesticks represent the fluctuations or variances that often occur with nominal price actions.

Through interpretation of the Heiken Ashi Indicator, stock traders and investors can have a better means of knowing when to invest and jump in as well as when to sell and jump out of this particular market or stock.

For day traders, the Heiken Ashi Indicator performs at its best with shorter timeframes such as the 5 minute or 10 minute tic charts.  While this technique is still useable and effective for day charts and longer, the performance with the shorter timeframe charts is very noteworthy.

Reading the Heiken Ashi Indicator is done through the review of the candles themselves as well as the up and down overall trends:

  • Filled bodies indicate a falling trend
  • Clear bodies indicate a rising trend
  • Longer bodies indicate a stronger trend (i.e. a long clear body is a strong rising trend)
  • Lower shadows indicate a weakening rising trend
  • Upper shadows indicate a weakening falling trend
  • Consolidation is found when the candle is smaller and has both upper and lower shadows
  • Larger or longer shadows indicate the predictability is reduced

Many traders have found the Heiken Ashi Indicator to be their preferred method for stock market analysis.  When looking at the tools to monitor and manage your plan, consider the Heiken Ashi Indicator as an important part of your investment analysis products.

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