Now that you’ve learned how to calculate Heikin Ashi candlesticks, let’s discuss how to use and read a Heikin Ashi candlestick chart.
The idea behind using a Heikin Ashi chart is that it filters market noise.
And since noise is filtered, you basically see the naked trend.
Because we calculated the Heikin Ashi candlesticks based on averages, the candlesticks will have smaller shadows (wicks) than a regular Japanese candlestick.
Just like with regular Japanese candlesticks, with a Heikin Ashi candlestick, the smaller (or shorter) the shadow (or wick), the stronger the trend.
Green candles with no lower shadow signal a strong UPTREND.
Red candles with no upper shadow signal a strong DOWNTREND.
Technical traders use Heikin Ashi charts to IDENTIFY:
- Trend DIRECTION
- Trend STRENGTH
So If your goal is to catch trends and ride them as long as possible, then you may want to learn how to use a Heikin Ashi chart.