Introduction to the Heiken Ashi Smoothed Indicator
“Heiken Ashi” literally means “average bars” when translated from Japanese, and the Heiken Ashi Smoothed indicator is rightly named as such. It is an indicator which is based on average price movements, and at the same time uses bars to indicate trend direction.
What is the Heiken Ashi Smoothed Indicator?
The Heiken Ashi Smoothed indicator is a trend following technical indicator which is a modified version of the Heiken Ashi Candlesticks. However, its characteristics also has a vary close resemblance to moving averages.
This version of the Heiken Ashi Smoothed indicator overlays bars on the price chart to indicate trend direction. It plots lime bars to indicate a bullish trend, and red bars to indicate a bearish trend.
How the Heiken Ashi Smoothed Indicator Works?
The Heiken Ashi Smoothed indicator plots bars which has an open, high, low, and close. However, these bars do not resemble a Japanese candlestick. The open, high, low, and close of the bars each have complex formulas which are based on modified moving averages. This creates bars that are farther away from the price candles and instead closely resembles the characteristics of moving averages.
It is also important to note that there are various methods for computing a Heiken Ashi Smoothed bar.
How to use the Heiken Ashi Smoothed Indicator for MT4
As mentioned above, there are various methods to compute for a Heiken Ashi Smoothed bar. This version of the Heiken Ashi Smoothed indicator allows traders to choose between different methods. This can be modified on the “MaMetod” and “MaMetod2” variables within the indicator settings.
This indicator allows traders to modify the periods used for the Heiken Ashi Smoothed indicator bars. This can be modified on the “MaPeriod” and “MaPeriod2” variables within the indicator settings.
The Heiken Ashi Smoothed indicator is primarily a trend following indicator. As such, it can be used either as a trend direction filter, wherein traders would trade exclusively in the trend direction indicated by the Heiken Ashi Smoothed bars, or as a trend reversal signal indicator, wherein trades are opened as the color of the bars change. However, as a trend reversal signal indicator, it should be traded in confluence with other trend reversal trade setups.
Buy Trade Setup
When to Enter?
Identify a diagonal resistance trendline on a downtrend market. Open a buy order as soon as price closes above the diagonal resistance line, while in confluence with the Heiken Ashi Smoothed bars changing to lime. Set the stop loss below the Heiken Ashi Smoothed bars.
When to Exit?
Close the trade as soon as the Heiken Ashi Smoothed bars change to red.
Sell Trade Setup
When to Enter?
Identify a diagonal support trendline on an uptrend market. Open a sell order as soon as price closes below the diagonal support line, while in confluence with the Heiken Ashi Smoothed bars changing to red. Set the stop loss above the Heiken Ashi Smoothed bars.
When to Exit?
Close the trade as soon as the Heiken Ashi Smoothed bars change to lime.
Conclusion
The Heiken Ashi Smoothed indicator is one of the most reliable trend following technical indicators available to retail traders. However, it still should not be traded blindly. Instead, traders should still take into account what the market structure is and simply use the Heiken Ashi Smoothed indicator as a trend confirmation.
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