Monday, May 12, 2008

Heikin Ashi Candlestick Charts

Croc,  I am wondering why you embrace Heikin-Ashi candles rather then conventional candles. I feel even the slightest "information giver" prejudices your judgment calls. Do you find only the ma information you want in Heikin-Ashi candles, or are there other factors these bars give you. I have noted for months and months now you use only these candles. Please fill me in on your reasoning.   Thank You, Gary

Hi Gary,

Why do I like HA candles? Well just take a “regular” candlestick chart and place the HA chart side by side. 

                  (Heikin-Ashi Candlestick Chart)              (Regular Candlestick Chart)

The HA chart looks a lot clearer and easier to read. You can tell me, but Chris you miss information, if you look at a candle with an “artificial” or calculated open and close price. That’s correct, but the information I miss is not part of any setup I trade. Actually the information I miss would cause me to close a trade prematurely would I see the regular candles.

HA candles have certain characteristics:

1. In an uptrend the candlebody starts at the bottom and the candle has an upwick. You don’t see the regular bottom or open of that particular candle.

2. In a downtrend the candlebody starts at the top and the candle has a downwick. You don’t see the regular top or open of that particular candle.

3. As long as the trend is intact a retracement in the trend will not change the color or shape of the candle.

4. If you see a candle with an up- and downwick, you know, that you see the real high and low of that particular candle.

5. A trendchange often is announced by such doji- or star-like candles near support or resistance levels.

6. The open of any HA candle starts at the 50% range of the previous candle. So to see an upwick in a downtrend the retracement has to go higher than 50% of the previous candle’s range. So even if this candle closes still red, it tells you that buyers have tried to take control from the sellers but were beaten down again. It’s a sign that sellers might be near exhaustion and a to be on watch for a double bottom and reversal.

7. The same principle applies for a top forming. You see a downwick while the candle still closes green, meaning sellers tried to take control from the buyers. They were rejected, but you should be on the lookout for another attempt thereby forming a double top.

8. Any retracement not going to the middle of the previous candle means the trend is still intact and will resume in due course. On a regular chart you might see one or multiple candles showing the opposite color, the HA chart just tells you to stay put and wait for the trend to resume.

It took me some time to get used to HA candles, to let go of the additional information regular candles give me. I gain on the other hand information hidden by regular candles as the trend is a lot easier to see on a HA chart. Only by trading HA candles was I able to increase my profit target from 4-10 tick to the 20 – 30 ticks now used and that is not the end as I’m still not catching more than 25% to 60% of any swing I see clearly on my charts.

Best regards,