One thing that traders should understand regarding the forex markets, or any type of tradeable instrument markets for that matter, is that its characteristics is a series of recurring patterns and waves. This is the reason why technical analysis trading works. Patterns tend to work again and again. The results may not be perfect, but you would often see the similarities between different patterns. Traders who are able to identify these waves and patterns can capitalize on these opportunities and make a lot of money.
Another thing about the market is that these patterns occur repeatedly on different timeframes. The difference is just the magnitude of the waves. Long-term trends on a lower timeframe are actually just short-term pulses on its corresponding higher timeframe. For example, a long-term trend on the 4-hour chart would be a short-term trend on the daily chart. Then, the short-term trends that are formed on the same 4-hour chart would actually be long-term trends on the 1-hour chart.
Many new traders would find it easier to identify short-term pulses bouncing off a short-term trend. Although this type of short-term trading does work, it is not the most efficient. However, the same short-term trends could be a long-term trend on the lower timeframe. The problem is that market noise would often distort the signals and patterns on the lower timeframe. If we could find a solution that would help us avoid the market noise or even disregard it and focus on waiting for a confirmed trade signal, then we could trade the same pulses as a long-term trend trade on the lower timeframes. This could allow for higher yields.
The Heiken Ashi Smoothed indicator is an excellent trend indicator that could help us with this. Let us look into how we could trade using this indicator and the 100 EMA line, which is a long-term trend moving average line.
Heiken Ashi Smoothed Indicator
Table of Contents
“Heiken Ashi” in Japanese translates to “average bars”. The Heiken Ashi Smoothed indicator is appropriately named as it technically is an average bar. In fact, it is an average representing the average movement of price.
The Heiken Ashi Smoothed indicator is a modification of the Heiken Ashi Candlestick. The Heiken Ashi Candlestick is a literal average bar in a sense. This is because it closely resembles a regular candlestick but only changes color whenever the direction of the short-term trend changes.
The Heiken Ashi Smoothed indicator on the other hand has a modified underlying computation that makes it resemble the movement of a moving average line. In fact, it behaves more closely to an Exponential Moving Average (EMA) line. It is very responsive to price movements, yet it is also smoothened out. The advantage of the Heiken Ashi Smoothed indicator on the other hand is that since it represented by bars that change color, the reversal points are more clearly defined and can therefore be used as a trend reversal signal. This version of the Heiken Ashi Smoothed indicator plots turquoise bars to indicate an uptrend, and crimson bars to indicate a downtrend.
Although, the Heiken Ashi Smoothed signals can be very reliable, it is not perfect. It could still produce false signals during choppy markets. As such, it is best to align its trend reversal signals with a longer-term trend.
100 Exponential Moving Average
Moving averages are widely used by traders as a basis for identifying trend direction. However, there are certain moving average lines that are more popular than others. Some tend to work well as a short-term trend indicator, others for mid-term trends, while others still are best suited for long-term trends.
The 100-period Exponential Moving Average (EMA) line is a widely used moving average line. It tends to work well as a mid- to long-term trend indicator. As such, it is also best paired with another trend following indicator which could work as a mid-term trend signal.
Traders could identify trend direction based on the location of price action in relation to the 100 EMA line. The market has a bullish bias whenever price action is above the 100 EMA line and a bearish bias whenever price action is below the 100 EMA line.
The slope of the 100 EMA line would also typically follow the direction of the trend. The 100 EMA line slopes up in an uptrend, and down in a downtrend.
It also works well as a basis for a dynamic area of support or resistance. There are many instances where price would bounce off the 100 EMA line after retracing towards it.
Moving Average Variables Modified
- Period: 100
- MA method: Exponential
Bullish Heiken Ashi Smoothed Bounce on 100 EMA Setup
- Price action should be above the 100 EMA line.
- The 100 EMA line should slope up.
- Price should retrace towards the 100 EMA line causing the Heiken Ashi Smoothed indicator to temporarily change to crimson.
- Price should bounce off the area near the 100 EMA line causing the Heiken Ashi Smoothed bars to change back to turquoise.
- Enter a buy order as the Heiken Ashi Smoothed bars change to turquoise.
- Set a stop loss on the support level below the entry candle.
- Close the trade as soon as the Heiken Ashi Smoothed bars change back to crimson.
Bearish Heiken Ashi Smoothed Bounce on 100 EMA Setup
- Price action should be below the 100 EMA line.
- The 100 EMA line should slope down.
- Price should retrace towards the 100 EMA line causing the Heiken Ashi Smoothed indicator to temporarily change to turquoise.
- Price should bounce off the area near the 100 EMA line causing the Heiken Ashi Smoothed bars to change back to crimson.
- Enter a sell order as the Heiken Ashi Smoothed bars change to crimson.
- Set a stop loss on the resistance level above the entry candle.
- Close the trade as soon as the Heiken Ashi Smoothed bars change back to turquoise.
This strategy could work well when used in the right type of trending market. These should be markets that are trending but with deep retracements. However, it could also produce false signals when traded in a choppy market condition. As such, it is still important for traders to identify trends based on price action. The indicators only serve as an indication and confirmation of the trend.
Forex Trading Strategies Installation Instructions
Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5 provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5?
- Download Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5.zip
- *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5
- You will see Heiken Ashi Smoothed 100 EMA Pop or Drop Forex Strategy – MT5 is available on your Chart
*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.
Click here below to download: