Prediction has always been the key to successfully trading the stock markets, and what better way to do this than with a heiken ashi chart? These Japanese created charts are compiled based on a number of calculations, meaning the end result is providing you with much more accurate information from which to predict than the average basic chart. Being a candlestick typed chart, heiken ashi is the fastest way to making an informed decision. Here are the formulas used in calculating the charts.
• xClose = (Open+High+Low+Close)/4
• xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2
• xHigh = Max(High, xOpen, xClose)
• xLow = Min(Low, xOpen, xClose)
In order to use these charts effectively, you will first need to understand them. Below is some of the basic information you will need in learning how to trade with heiken ashi charts.
One of the main benefits of using the heiken ashi method is that it is neatly presented and simple to understand once you get the hang of it. The value of each individual candlestick is derived by calculating upon the dominant forces in the market. The first important thing to remember is that red candlesticks refer to sellers (or bears), so when the candlesticks are red it means that the sellers are dominating at that point in time. When the candlesticks are white it is indicating that the buyers are dominating.
If a trader sees a full red candlestick pointing downwards, this means that the sellers are currently dominant with a strong downtrend. Alternatively, if traders see a full white candlestick pointing upward then the buyers are dominating with a strong uptrend. How the chart works is very simple in this respect.
Other things to know include the following. If a candle is hollow with no ‘shadow’ pointing down (a shadow is the thin line that appears either at the top or the bottom end of the candlestick) then there is a strong uptrend, which is good for your profits. Hollow candles on their own show upward trends. A small candle with shadows on both ends means there is a trend change coming about. This is a transitional point at which certain traders will decide to take a risk if they are feeling lucky. A filled up candle means there is a downtrend, and filled candles without a shadow on top means the downward trend is strong, and therefore this is perhaps a good time to wait until the trend changes.
As you can see, the meanings derived from a heiken ashi chart are very straight forward, and once you are able to interpret them properly you will be making highly informed decisions about how you trade. It’s all about learning and experience. There are a larger range of meanings that these charts can communicate to traders, in comparison to the more basic charts out there, and this in turn means more information from which to make a prediction.
For more information about Heiken Ashi and Forex Trading Systems please visit http://www.free-forex-systems.com/