The prime concept behind the Heikin Ashi chart is that it is intended to filter out market noise. When you look at this chart, you ought to be able to get a clearer picture of what is really happening in the market without all of the fakeouts and other issues. You should see a smoother trend in one direction or the other instead of the constantly micro ups and downs that the market produces.
The Heikin Ashi is based on averages, so you won’t see the larger wicks that accompany traditional Japanese candlesticks. Instead, you are getting a more refined picture of what the market is doing when you use this tool.
The two main things to look for with this tool are green candles with little to no lower wick and red candles with little to no upper wick.
The lack of a wick means that the trend is quite strong. After all, it indicates that the market is not questioning which direction to take the market in. The market feels strongly that the currency should be headed in one direction or other other, and you need to get on board with wherever it happens to be going.
Identifying Trend Direction
It is pretty simple. You are looking for red candles or green candles. The Heikin Ashi is color-coded like this, so you shouldn’t have any trouble figuring out which direction the market is trying to go in. You just need to look for a string or either green or red candles to get your hands on how it is trading.
Identifying Trend Strength
Just knowing which direction the market is moving in is not enough. You also need to figure out how strong the strength of those trends are. This is why you should also check the wicks of candles that you see on the Heikin Ashi chart. If there are no wicks on the charts, then you may be looking at a strong trend in one direction or the other.
Candles without wicks like this are known as “shaved” candles, and they are important to keep an eye out for. You don’t want to miss out on the opportunity to trade into a strong uptrend or downtrend when you have the chance to do so.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.