Indicator Description
A modified version of Dan Valcu’s Heikin Ashi candles was later suggested by Sylvain Vervoort. Both Heikin Ashi charts approaches are used to identify long / short biases. However, keep in mind that although Heikin Ashi bars are built as conventional candlesticks, they apply modified bar formulas. In brief, each candle plot take some data from the previous candle. You may review an article explaining this approach in the May 2008 issue of the TASC magazine; ‘The quest for reliable Crossovers’. It was furthermore discussed in our Indicator Spotlight newsletter on how to determine market trends using Heikin Ashi Indicator.
Interpreting Heikin Ashi Charts
You may use Heikin Ashi candles to determine market trends, identifying short/long biases. Blue candles on a Heikin Ashi chart will show a rising trend, whereas magenta candles indicate a downtrend. Long blue bodies with minor lower shadows indicate strong up-trends. Conversely, down-trends have long magenta bodies with minor upper shadows. If the bodies decrease in size, one should anticipate a weaker trend. A period of consolidation will generally have several small bodies with both long upper and lower shadows. A very small body with tall shadows may be a warning about a possible change of trend.
Smoothed Heikin Ashi Candles
A Heikin Ashi chart is smoother when compared with its traditional candlestick counterpart. With our library version, you may smooth the Heikin Ashi bars with a selection of more than 30 different moving averages. One may furthermore choose between the Dan Valcu or Sylvain Vervoort formula.
Although Heikin Ashi candles look straightforward and easy to trade, overlaying the primary bars with black for down closes and transparent for up closes will reveal a more nuanced picture. The true price levels will now be visible which is important when setting appropriate stop loss levels. Accordingly, you may consider displaying paintbars on a Heikin Ashi chart, displaying the trend bias on primary bars that display the true price action.
Other Library indicators
The Heikin Ashi candles are best used in combination with additional tools for technical analysis such as momentum oscillators, support / resistance and volume indicators. Specifically, you may review the Acceleration Deceleration, Laguerre RSI, Know Sure Thing, SRSI and the Projection Oscillator. For support / resistance levels you may have a look our Session Tools and Fibonacci lines, such as Rolling Pivots Monthly weekly Fib retracement levels or the Fibonacci Bands. You may also review our tools for Range and Volume Analyis, i.e. relative range / relative volume analysis.
The indicator is available for NinjaTrader 8.