Heiken Ashi Indicator for MT4

February 16, 2021

2006

Introduction to the Heiken Ashi Indicator

“Heiken Ashi” literally means “average bars” when translated from Japanese. The Heiken Ashi indicator was developed by Munehisa Homma in the 1700s. This is an indicator which is also a charting method that uses average price data in order to create a better sense of the current momentum or trend direction.

What is the Heiken Ashi Indicator?

The Heiken Ashi indicator is a trend following indicator which indicates trend reversals by overlaying a bar on the candlesticks.

It can also be used as a different way to view price charts as it also closely resembles a Japanese candlestick. The difference would be that the open and close of each candle is modified and the color of the candle changes only when the direction of the short-term trend changes.

How the Heiken Ashi Indicator Works?

The Heiken Ashi indicator plots a different open and close compared to traditional price charting methods. It modifies the Open Price as the average of the open and closing price of the previous bar or the midpoint of its open and close. It also modifies the Close Price as the average of the open, high, low, and close of the current bar. The High and the Low of the Heiken Ashi candles remain the same.

These modifications effectively cause the Heiken Ashi candlesticks to change only when the direction of the short-term trend changes.

This version of the Heiken Ashi overlays green bars to indicate a bullish trend and red bars to indicate a bearish trend.

How to use the Heiken Ashi Indicator for MT4

The only variables that can be changed within the Heiken Ashi settings are its colors. Traders can opt to change the color of the bars to one which they prefer or colors that would not clash with the color of the Japanese candlesticks on the background.

The Heiken Ashi candlesticks can be used as a short-term trend or momentum reversal signal indicator. This will be based on the changing of the color of the bars it overlays.

However, it is best that these reversal signals is used in confluence with the main trend direction or as a reversal entry signal which is in confluence with another reversal trade setup.

Buy Trade Setup

When to Enter?

Identify an uptrend market. Wait for price to pullback causing the Heiken Ashi bars to temporarily change to red. Open a buy order as soon as the Heiken Ashi bars change back to green. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as the Heiken Ash bars change to red.

Sell Trade Setup

When to Enter?

Identify a downtrend market. Wait for price to pullback causing the Heiken Ashi bars to temporarily change to green. Open a sell order as soon as the Heiken Ashi bars change back to red. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as the Heiken Ash bars change to green.

Conclusion

The Heiken Ashi indicator is an excellent tool which traders can add to their trading system. However, it should not be used as a standalone trade signal. Instead, it should be used in confluence with a bigger picture trading strategy.