Heiken-Ashi Indicator for MT5

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Heiken-Ashi Indicator for MT5

Introduction to the Heiken-Ashi Indicator

Heiekn-Ashi literally means “average bars” when translated from Japanese, and the Heiken-Ashi Indicator is rightfully named so. This indicator modifies the standard Japanese candlesticks into average bars, which reduces the market noise which often confuses traders during tight choppy market conditions.

What is the Heiken-Ashi Indicator?

The Heiken-Ashi Indicator is a momentum indicator which indicates the direction of the short-term momentum using average bars.

This indicator overlays average bars on the price chart which are essentially modifications of the standard price bar. However, unlike the regular Japanese candlesticks which change color based on where the close is in relation to the open of the candle, this indicator plots bars which change color only when the short-term momentum has changed.

It plots blue bars to indicate a bullish momentum and red bars to indicate a bearish momentum.

Heiken-Ashi Indicator for MT5

How the Heiken-Ashi Indicator Works?

The Heiken-Ashi Indicator modifies the standard Japanese candlestick by changing the open and close of the candles based on the average of price. The high and low of the candle remain the same.

The close of the bar is modified to be the average of the open, high, low, and close.

Close = (Open + High + Low + Close) / 4

The high of the bar is modified to be the midpoint of the open and close of the previous bar.

Open = (Open of Previous Bar + Close of Previous Bar) / 2

These modifications change the timing of the changing of the color of the bars causing it to change only when the short-term momentum has shifted.

How to use the Heiken-Ashi Indicator for MT5

Since the formula for the Heiken-Ashi Candlesticks is fixed, there are no variables that can be modified within the indicators formula. There are also no options which can be modified within the indicator settings except that of the color of the bars.

This indicator is best used as a momentum reversal entry signal. Traders can use the changing of the color of the bars as an entry signal or confirmation of a trade. However, not all its signals will be accurate. So, it is best used merely as an entry signal to a bigger picture trading strategy.

Buy Trade Setup

When to Enter?

Open a buy order as soon as the Heiken-Ashi bars change to blue. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as the Heiken-Ashi bars change to red.

How to use the Heiken-Ashi Indicator for MT5 - Buy Trade

Sell Trade Setup

When to Enter?

Open a sell order as soon as the Heiken-Ashi bars change to red. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as the Heiken-Ashi bars change to blue.

How to use the Heiken-Ashi Indicator for MT5 - Sell Trade

Conclusion

The Heiken-Ashi Indicator bars can be an effective entry trigger type of indicator. Its short-term momentum bias allows traders to enter trades with minimal lag while allowing for an objective trade entry based on the changing of the color of the bars. However, it should not be used as a standalone trade signal. It is still best to trade these signals in confluence with other technical indications as well as a longer-term trend direction.

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Heiken-Ashi Indicator for MT5

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