In today’s Trading Beacon tutorial, we’ll explain exactly how to read Heikin Ashi Candles, as well as the best Heikin Ashi trading strategy (both for scalping strategies and longer-term patterns.)
So if you want to know how to read Heikin Ashi candles, the difference between regular candles vs Heikin Ashi, as well as an effective trading strategy then tune in…As all this and more is explained in today’s video.
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So the number 1 question people ask when they first see a Heikin Ashi chart is always: “How is this different to a regular candlestick chart?”. Both of these charts look similar in appearance, yet they each have different uses, and different ways of being calculated.
The way a traditional candlestick chart is calculated is incredibly simple: The Open, High, Low and Close values are all taken as the price of the asset changes over time. Past candles have absolutely no impact on the formation of current candles. But this is where Heikin Ashi candles differ: Heikin Ashi candles are actually calculated using information from the previous candle.
The open of a Heikin Ashi candle is calculated by taking the average of the open and close price of the previous candle. This is very easy to see on the chart, as each Heikin Ashi candle opens at exactly 50% of the previous candles body.
The close of a Heikin Ashi candle is calculated by taking the average of the high, low, open and close of the current period. The high is calculated by taking the high, open and close of the current period and choosing the MAXIMUM value out of the 3. And the low is calculated by taking the low, open and close of the current period and choosing the MINIMUM value.
Heikin Ashi candles are typically used to smooth out price action, eliminate noise and make it much easier to identify trends in the market. A typical uptrend using regular candlesticks will likely have a mix of both red and green candles.
For example looking at this chart, at this point in time we were in a short-term uptrend. We have a small consolidation at the bottom. We have a strong green candle, followed by a red candle. Then a series of green candles, followed by another red candle. And finally another series of green candles before the uptrend ended. This is typical price action on a regular candlestick chart. Just because we’re in an uptrend it does not mean 100% of the candles will be green. It’s normal to see pullbacks along the way, which come in the form of these red candles.
Beauty Flow by Kevin MacLeod
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