Heikin-Ashi-two-Bar-Strategy
Guide to Strategic and Tactical Forex Trading
Currency: EUR/JPY, GBP/JPY
Time frame: 5 min
Indicators: BB 14, 2, ADX 14, SSD 5, 3, 3, EMA 9, 20, 55, 120
This technique is used in combination with Bollinger Bands 14,2, ADX 14 , SSD 5, 3, 3 and EMA 9, 20, 55, 120.
Buy/Sell signals:
Entry: after two hollow or two filled candles.
Leading indicator:SSD 5, 3, 3, crosses often 1-2 bar before
Confirmation: +DI/-DI-line-crossover.
+DI (green) and -DI (red) line (ADX 14) crosses sometimes 1-4 bars afterward entry point .
Price Momentum:
+DI stays on top of -DI — uptrend is in place.
-DI stays on top of +DI — downtrend is in place.
Strategig Forex Trading:
ADX -/+ DI lines are used for spotting entry signals.
All -/+ DI crossovers are disregarded while ADX remains below 20.
Once ADX peaks above 20 a buy signal occur when +DI (green) crosses upwards and above -DI (red). A sell signal will be, when +DI would cross -DI downwards.
Exit Points:
* When Heikin-Ashi-bar-colour changes and/or Heikin Ashi bar closes over the counterpart side of EMA 9 line.
* In all situation of +DI/-DI-line-crossovers (when trend is changing - two DI cross).
* Entry and exit situations are often signalize with SSD 5, 3, 3, crossing near 20 or 80 % line,
Tactical Planning
Trending or Ranging Environment
Hollow candles with no lower shadows are used to signal a strong uptrend, while filled candles with no higher shadow are used to identify a strong downtrend.
When we talk about range trading condition, the Average Directional Index is one of the primary technical indicators used to determine the strength of a trend. In a trending environment, look for ADX to be greater than 25 and rising. However, if ADX is greater than 25 but sloping downward, especially off of the extreme 40 level, (on one-minute-time-tables often 50 >) you have to be careful of aggressive trend positioning since the downward slope may indicate that trend is waning.
Stay in your winning trades
Let the buy or sell orders running if ADX is high (ADX 25 >) and Heikin-Ashi-Bars are over EMA 9 (uptrend) or under EMA 9 (downtrend) without any +DI/-DI-line-crossover.
When ADX 14 is below 20 trading wouldn't be carry forward.
Watch the indicator
When ADX rises above 20 for the first time and then goes flat for some time, there is believed to be a new trend being born and the reason for ADX being currently flat is because market reacts to this new trend formation by making first initial correction. During this correction it is a good time to initiate new orders. Spent some time reviewing shorter time charts as well (one-minute-time-frame).
- When ADX is too low, don't trade. (Often come along with indifferent candles)(C)
(C)Compare the above/underneath illustrations: earmarked ABC or ABCDE.
ADX 14, EMA 9, 20, 55
In addition to using ADX, it is recommended looking for a confirmation of a trending enironment through momentum indicators (Stochastic, RSI, moving average convergence/divergence MACD). You have to look for momentum to be consistent with the direction of the trend. Looking for oscillators to point strongly in the direction of the trend! For example, in a downtrend , look for the moving averages EMA 9, 20, 55, Stochastic 5, 3, 3 (and/or RSI and moving average convergence/divergence - MACD) to all point strongly downward. In an uptrend, they will look for these same indicators to point upward.
One of the strongest momentum indicator is a perfect order in moving averages. A perfect order is when moving averages line up perfectly, that is for an uptrend, the EMA 9 is greater than the EMA 20, which is greater than the EMA 55. In a downtrend, aperfect order would be when the short-term moving averages stack up below the longer-term moving averages.
Stochastic 5, 3, 3
In combination with the heikin-ashi-bars 5 minute, Stochastic 5, 3,3 may be especially in ranging environments a leading indicator from about one to two bars. It is important to remember this while in sideways moving market a single Stochastic lines crossover that occur above 80% or below 20% „trigger levels“ will most of the time result in a fast predictable trend change, in trending market could mean just nothing.
When price is trending well, Stochastic lines may easily remain in overbought/oversold zone for a long period of time while crossing there multiple times.
The main idea behind Stochastic indicator according to its developer, George Lane, lies in the fact that rising price tends to close near its previous highs, and falling price tends to close near its previous lows. Stochastic lines crossovers that happen above 80% level and below 20% level are treated as strongest signals, compare to crossovers outside those levels.
In the figure „red X“ stand for Exit and „green E“ signalize Enter points (Buy or Sell signals).
When price is trending well, Stochastic lines may easily remain in overbought/oversold zone for a long period of time while crossing there multiple times. ( You can also take MACD, may be it shows the same signals). You can go further,..., when stochastic was trading for some time in overbought zone – above 80% level, (compare with high ADX) traders wait for the lines to slide down and eventually cross 80% level downwards before considering to take Short positions. Opposite for Long positions: wait till Stochastic lines come into the oversold zone (below 20% level); wait further until Stochastic lines eventually cross 20% level upwards; initiate a buy order once Stochastic lines are firmly set, e.g. a trading bar is closed and Stochastic lines cross over 20% mark is fixed.
Notice:
Traders may choose sensitivity of their Stochastics. The smaller the Stochastic parameters, the faster it will react to market changes, the more crossovers will be shown (here it's better lookinf for EMA's).
Sensitive Stochastic (for example 5, 3, 3) is useful for observing rapidly changing market trends. But because it is too choppy it should be traded in combination with other indicators to filter out Stochastic signals.
- ADX indicator is never traded alone, but rather in combination with other indicators and tools. ADX indicator most of the time gives much later signals comparing to faster reacting moving averages crossover or Stochastic, for example, however, reliability of ADX indicator is much higher than for other indicators in traders' toolkit, which makes it a valuable tool for many Forex traders.
Over and Out
- If ADX is traded above 20 but below 40, it is time to apply trend following methods. An example would be: Forex trading Moving averages or trading with Parabolic SAR indicator.
- When ADX reaches 40 level (5-min-chart – e.g. ADX 50-level on 1-min-time-frame), it suggests an overbought/oversold (depending on the trend) situation on the market and it is time to protect some profits of at least move Stop loss order to a break even. See here more at SSD 5,3,3.
-When ADX passes 40 level, it is a good time to begin collecting profits gradually scaling out of the trades on rallies and sell-offs and protecting remaining positions with trailing stops. Looking at SSD 5,3,3
Heikin-Ashi-Candlestick-Pattern
Heikin-ashi technique is based on the effect of the size and color of the candle bodies. The heikin-ashi is a visual technique that eliminates irregularities from a normal chart, offering a better picture of trends and consolidations. All trends are well-defined by sequences of white or red bodies, making them easy to identify and follow.
Full bodied candles are considered "decision" candles, a decision candle tells us the market has made a decision to go in a particular direction.
Indecision candles
are candles with little or no body at all. These candles tell us the market cannot make up its mind which direction it wants to go.
Indecision candles
does not mean market is going to reverse, very often price just means for a bit and then continues in the same direction, however indecision candle(s) often appear just before the market reverses which is why this is a good tool to have in your arsenal.
Note the bullish decision candle after the Doji. It appears the market has "made up its mind" and is starting to go up.
See Attached Images: "Decision Candles and Indecision Candles"
The Heikin-Ashi technique is used by technical traders to identify a given trend more easily.
More to heikin-ashi-technique e.g.:
Heikin-Ashi Technique: Definition from Answers.com.
Keep an eye on the clock
Pay attention to London open (6 to 8 A.M. London time), the New York open (6 to 8 A.M. New York time) and the London close (5 to 6 P.M. London time). The markets move when these traders open and close their trades for the day.
Time Chart
Figure February 2, 2009 gives practical information how this technique can be used.
Labeling
Entry signals: E, (Entry signals can be buy or sell orders)
Exit signals: X (the matching part)
Indifferent candles: ABC or ABCDE
Compare the above/underneath illustrations.
Figures „February 02, 2009“ clearly represented without BB 14.
Thank you for investing your time. So I know Heikin-Ashi-two-Bar-Strategy has become a great success and will positively impact your currency trading.
Kind regards.
Christian
Switzerland
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