In this blog post, I would like to talk about Heiken Candlestick which is one of my favorite candlestick pattern technique to help me to stay in trend until the momentum slows and / or start to turn.
A recent example: SIA run up (about 5th Jan 2023 to 1st Feb 2023)
Chart 1: A recent example: SIA run up (about 5th Jan 2023 to 1st Feb 2023) of Trending - chart created using TradingView
Heiken Ashi candlesticks are a type of charting technique that can be used to identify trends in the financial markets. Heiken Ashi candles are like regular candles but are calculated differently. One can take a look at the actual formula here: Heikin-Ashi Chart - Wikipedia
Chart 2: Period of Trending - where Heiken Ashi helps one to stay in position (taking 2 consecutive HA candlesticks as exit signal - chart created using TradingView
One of the strengths of the Heiken Ashi candlestick is that it is good at keeping a trader in a trend. When the market is trending, the Heiken Ashi candlestick will show a series of green (bullish) or red (bearish) candles, depending on the direction of the trend. Since the Heiken Ashi candlestick takes into account the average price of the current period, it smooths out the price action and helps traders stay in a trend for longer periods.
However, one of the weaknesses of the Heiken Ashi candlestick is that it is not suitable for sideways markets. In a sideways market, the Heiken Ashi candlestick will produce a series of alternating green and red candles, which can be misleading and confusing for traders. The Heiken Ashi candlestick is designed to identify trends, and it may not be effective in identifying sideways markets.
Traders who use Heiken Ashi candlesticks must be aware of its strengths and weaknesses. They should use other technical indicators to confirm the signals generated by the Heiken Ashi candlestick. For example, traders can use moving averages or trend lines to confirm the direction of the trend. They should also be aware of the current market conditions and adjust their trading strategies accordingly.
In conclusion, The Heiken Ashi candlestick is effective for identifying trends and maintaining them for longer periods. However, it's unsuitable for sideways markets, so traders should use complementary indicators. They should be aware of its pros and cons and adjust their strategies accordingly.
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