Smooth Heiken Ashi: This Indicator Will DOUBLE Your Profits
Hey traders! I’m sure you’ve heard of the Heiken Ashi indicator. It’s one of the most powerful trading tools used to get a clear view of overall market direction. However, did you know there’s actually a better version of this indicator that can nearly double your profits? Without further ado, let’s dive right in. I’ll show you what the indicator is and how you can use it to enhance your trading strategy.
Introduction to Heiken Ashi
The classic Heiken Ashi indicator works by smoothing out the price action, replacing traditional candlestick charts with Heiken Ashi charts. This makes it easier for traders to analyze the overall trend. For example, in a traditional candlestick chart, there can be a lot of market noise during an upward price movement, leading to false signals. Switching to a Heiken Ashi chart eliminates this noise by displaying same-colored candles when the market is trending, helping traders analyze the trend more easily.
Drawbacks of Classic Heiken Ashi
Despite its advantages, the classic Heiken Ashi has a couple of significant drawbacks:
- Lack of Real Price Information: Heiken Ashi charts display a smoothed-out version of the price, not the actual price. This can restrict a trader’s ability to perform certain types of analysis, such as identifying chart patterns or finding key support and resistance levels, which require real price data.
- Sensitivity to Short-Term Volatility: Classic Heiken Ashi can produce multiple false signals during short-term market volatility.
Introducing Smooth Heiken Ashi
To address these issues, a new indicator was created: Smooth Heiken Ashi. Unlike the classic Heiken Ashi, which fully transforms the candles on a price chart, the Smooth Heiken Ashi works as an overlay on a real price chart. This allows traders to use the indicator’s capabilities while still seeing the actual price movement. It is also better at filtering out noise during volatile market conditions, providing more consistent signals.
Applying the Smooth Heiken Ashi Indicator
You can use any charting platform, but we’ll use TradingView for this example.
- Add the Indicator:
- Go to the indicator section and type “Smooth Heiken Ashi”.
- Choose any of the available options.
- Settings:
- Default settings are 10 and 10, which are suitable for general use.
- For scalping or short-term trading, use 5 and 5.
- For swing trading or long-term analysis, use 20 and 20.
How to Use Smooth Heiken Ashi
The Smooth Heiken Ashi indicator displays colored candles based on trend direction:
- Green Candle: Indicates an uptrend.
- Red Candle: Indicates a downtrend.
Identifying Trend Reversals
- Color Change:
- A change from green to red indicates a possible trend reversal from uptrend to downtrend.
- A change from red to green indicates a possible trend reversal from downtrend to uptrend.
- Candle Size:
- Larger candles indicate a stronger trend with more momentum.
- Smaller candles indicate a weakening trend.
Example of Trend Reversal
In a downtrend, red candles become smaller before switching to green, signaling a potential uptrend. However, avoid taking positions immediately upon color change, as this could lead to late entries. Instead, wait for a pullback towards the indicator and look for confirmation signals such as a rejection candle or a green engulfing candle to confirm the trend reversal before entering the trade.
Strategies Using Smooth Heiken Ashi
Entry Strategy
- Identify Strong Trend:
- Look for large Heiken Ashi candles indicating a strong trend.
- Wait for Trend Change:
- Observe the candles becoming smaller and changing color.
- Wait for Pullback:
- Allow the price to pull back towards the indicator.
- Confirmation Signal:
- Look for additional price action confirmation, such as a rejection candle or engulfing pattern.
- Enter Trade:
- Place a buy or sell position based on the confirmation signal.
- Set stop loss at the nearest swing low/high.
- Set a profit target at 2-3 times the risk.
Exit Strategy with Trailing Stop
Use the Smooth Heiken Ashi as a trailing stop loss indicator to maximize profits:
- Let the position run until the Heiken Ashi candles change color, signaling the end of the trend.
Example of Breakout Setup
In a descending triangle pattern:
- Identify key support and resistance levels.
- Look for a breakout above the resistance level.
- Enter a buy position and use the Smooth Heiken Ashi to trail the stop loss, exiting the trade when the candles change color.
Conclusion
The Smooth Heiken Ashi indicator offers a significant improvement over the classic Heiken Ashi by providing clearer signals and allowing traders to see actual price movements. Implementing this indicator in your trading strategy can lead to better entry and exit points, maximizing your profits.
Author: Simeon Bala
An Information technology (IT) professional who is passionate about technology and building Inspiring the company’s people to love development, innovations, and client support through technology. With expertise in Quality/Process improvement and management, Risk Management. An outstanding customer service and management skills in resolving technical issues and educating end-users. An excellent team player making significant contributions to the team, and individual success, and mentoring. Background also includes experience with Virtualization, Cyber security and vulnerability assessment, Business intelligence, Search Engine Optimization, brand promotion, copywriting, strategic digital and social media marketing, computer networking, and software testing. Also keen about the financial, stock, and crypto market. With knowledge of technical analysis, value investing, and keep improving myself in all finance market spaces. Pioneer of the following platforms were I research and write on relevant topics. 1. https://publicopinion.org.ng 2. https://getdeals.com.ng 3. https://tradea.com.ng 4. https://9jaoncloud.com.ng Simeon Bala is an excellent problem solver with strong communication and interpersonal skills.
