How to identify market trends with Heikin-Ashi charts

THEY’RE not a new invention, but Heikin-Ashi charts have gained popularity over the last 12 months. They are an offspring of the famous Candlestick charts, which are now standard on most trading platforms around the world. The main difference between the two is that Heikin-Ashi gives a better take on trending markets by generating fewer false signals. In fact, it’s almost impossible for a normal human being to misjudge a trend when using Heikin-Ashi charts. See it yourself next time you trade.

Furthermore, a significant benefit of staying in a trend for longer is that you will usually make more money.

A good example is the latest decline in euro-dollar. In December 2015, a sell signal was generated at $1.2420, and the Heikin-Ashi-Candle did not change bias until we reached $1.1320. That is a 1,100 pips move without any signs of reversals. In comparison, the classic Candlestick chart showed signs of slowing down on two occasions, which could have caused an investor to close out early.

The secret of Heikin-Ashi charts is that they blend the last two days of price activity, and they will not change colour until we get a significant trend change. This is a great edge for anyone looking to stay in a trade for longer.

Another good example of where this might have proved useful is the decline in euro-dollar throughout March (+750 pips). And in regards to the decline which started last week and which might take euro-dollar to parity, according to Heikin-Ashi charts, we still have five days of decline left in this cycle.

Source: Alejandro Zambrano is a currency strategy analyst at DailyFX.com.