Heikin Ashi Charts Exposed For Forex Trading
Heikin Ashi Charts introduce a delay in the signals that can be good when trading highly volatile currency pairs like the GBPJPY.
Heikin Ashi Charts were also developed by the Japanese. However, they use a different method to calculate the candles.
Now a candlestick chart uses the high, low, open and closing price in its candles. Heikin Ashi Charts also use the same information but in a different format. Heikin Ashi Candles depend on the Open, Close, High and Low of the previous candle.
Close; This is calculated by the average of the Open, Close, High and Low. (O+C+H+L)/4
Open: This is the average of the Open and Close of the preceding candle.
High; This the highest value amongst the Open, Close, High and Low.
Low; In the same way, on a Heikin Ashi Chart, the low is the lowest value amongst the Open, Close, High and Low.
Heikin Ashi Charts are valuable in trading highly volatile currency pairs as their is a certain delay before the new candle appears. This delay reduces the number of false signals when you are trading with the Heikin Ashi Charts as compared to the regular Candlestick Charts.
Heikin Ashi Charts along with the Renko Charts are used by scalpers. Heikin Ashi Charts are used on the 1 minute and the 5 minute timeframes that are favorite with the scalpers. The element of delay introduced in the regular candlesticks on the Heikin Ashi Chart reduces the noise, a major problem on the smaller timeframes. This delay also helps in avoiding an early entry into the market that might have forced you to make a wrong move in the market.
When using these charts, hollow candles with no lower shadows indicate a strong uptrend which means continuing with the long position and gathering as much profit as possible. Hollow candles indicate a uptrend in place. This means to continue with your long position and exiting any short trade that you might have.
Now the limitations of the Heikin Ashi Charts. These charts are good for trading volatile currency pairs and short timeframes like the 2 minutes or the 5 minutes charts used in scalping. However, these charts are not suitable for trading longer timeframes as the candles on these charts are already delayed and you might enter the market too late. So if you are a scalper or love to trade volatile currency pairs, you should master Heikin Ashi Charts.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Discover the Forex Fractal Breakout Custom Indicator by Don Steinitz. Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade.
by: Ahmad Hassam
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Word Count: 424
Date: Tue, 26 Oct 2010
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