• We Now Turn Our Attention to the World of Japanese Charting and Take a Look at Our First Chart Type That We Need to Know – Heikin Ashi (HA)!

Total Page:16

File Type:pdf, Size:1020Kb

• We Now Turn Our Attention to the World of Japanese Charting and Take a Look at Our First Chart Type That We Need to Know – Heikin Ashi (HA)! Heikin Ashi • We now turn our attention to the world of Japanese charting and take a look at our first chart type that we need to know – Heikin Ashi (HA)! • We will build Heikin Ashi up to include other indicators to create one of the 4 key set ups that I call Ichimoku Heikin Ashi (IHA)… • What is it: In simplified terms it is a modified candlestick chart, that smooths out the data to make the trends more obvious and keep you in your trades longer and hopefully for the better. “It is a strong psychological trading tool especially for those new to trading.” • The other good thing with the Heikin Ashi chart over the ordinary Candlestick chart is that you don’t have to learn all those hundreds of bizarre sounding patterns. There are only a few key ones you’ll need to learn…. 1 Summary of advantages of Heikin Ashi charting: • Takes out a lot of the psychology and noise around the charts. • Traders often cut out of trades far too early and regret their actions. • This trait is most prevalent (and understandably so) in new traders. • Try to force trades to a conclusion rather than sticking to original mental trading model strategy. • Another major psychological problem is that as we start to win we become more risk averse and as we start to lose we become bigger risk takers! The old adage that you must let your profits run is very true! • A lot of people struggle to deal with the psychological movement of the price – become to absorbed in the now: Heikin Ashi is here to help you! 2 • Heikin Ashi Candles is a method of smoothing out some of the noise / volatility that impacts the decision making processes and presents to the user a clearer visual representation of the trend. • HA candles are simply a derivative of the candlestick chart • Heikin Ashi translated from Japanese means Average Bar. • The trend is easier to see and HA charts will help keep you in a trending trade. Also it will be easier to spot price reversals. 3 The math behind Heikin Ashi: Each HA bar as you guessed is calculated using 2 bars. The output is very similar to a traditional candlestick. Like the candlestick you are aiming to produce an Open, Close, High and low. X = current period X-1 = prior period The formula for each of these is: 1. The Heikin-Ashi Close is the average of the open, high, low and close for the current period. HA Close = (Open(X) + High(X) + Low(X) + Close(X)) / 4 2. The Heikin-Ashi Open is the average of the prior Heikin-Ashi candlestick open plus the close of the prior Heikin-Ashi candlestick. HA Open = (HA-Open(X-1) + HA-Close(X-1)) / 2 3. The Heikin-Ashi High is the maximum of: the current period's high, the current Heikin-Ashi candlestick open or the current Heikin-Ashi candlestick close. HA High = Maximum of the High(X), HA-Open(X) or HA-Close(X) 4. The Heikin-Ashi low is the minimum of: the current period's low, the current Heikin-Ashi candlestick open or the current Heikin-Ashi candlestick close. HA Low = Minimum of the Low(X), HA-OpenX) or HA-Close(X) 4 You’re wondering how to calculate the first candlestick in your range? Simple; just take the data from the current open, high, low and close. Example: We have 2 HA candlestick bars of data on the S&P500: X= Open 2049, High 2064, Low 2049, Close 2057 X=1 Open 2044, High 2066, Low 2045, Close 2054 Therefore the current Heikin Ashi Bar Open, High, Low, Close would be: X = Open 2049, High 2064, Low 2049, Close 2057 5 Example Using Under Armour Inc. On A Daily Chart: Left Candlestick, Right = Heikin Ashi Look how much more ‘obvious’ the Heikin Ashi chart data is!! 6 The only candlestick chart bars / patterns you’ll need to know using HA: What can we draw out from the HA chart that we can utilise in our trading? 1. The HA is a lot smoother making trends easier to spot. Excellent for Trend traders. 2. There are still traditional candlestick patterns in play on the HA chart although many are lost: Dojis and Spinning tops are very important in the HA chart and show key ‘indecision’ levels and often points of reversal 7 Some other important things to note: 1. Traditional classical technical Analysis patterns like Triangles, Heads & Shoulders still work on HA charts. 2. You will notice that HA charts eradicate ‘gaps’. 3. On HA big down bars with little or no upper shadow signify strong selling pressure 4. On HA charts big up bars with little or no lower shadow highlight strong buying pressure. 8 Notes On The Strength Of Trends: You will notice when a strong trend is underway that the shadows (wicks) of the candles will not be visible. When a trend becomes weak / weaker then, the shadows will start to appear. This is not necessarily a sign of a reversal just the possibility of a slowdown of the trend. 9 HA trading works in any time frame whether it be intraday: 5min, 15min, 60min, 240min or End of Day e.g. Daily and weekly charts. HA charts also work across all assets whether they are Commodities, Equities or FX for example. It is advisable to use indicators to confirm HA trade signals e.g. Stochastics, MACD etc. The following EUR 15 minute chart from 08/07/15 below highlights 6 possible trading strategies you could use. Again see how the Heikin Ashi candles interact in this instance with pre-set pivot lines, moving averages and trend lines! • The Bounce • The Continuation • The Reversal • The Pause • The Pullback • The Breakout 10 Heikin Ashi Strategy Example: 11 STA methods at THE STOP HUNTER: • Before we move on to the other 3 types of chart, just a brief overview, so you can get your head around why we use Heikin Ashi in combination with other indicators i.e. the Heikin Ashi / IHA set up and why we look to use Renko, Kagi and Line Break charts. • Heikin Ashi and the IHA set up method is rarely used (maybe unique in its combination of tools) – it is great for trend following, continuations and reversals. The next 3 types of charts (Line Break, Kagi, Renko) is what really make THE STOP HUNTER methodology different from the rest. • It is a blend of East meets West. The best of both worlds in our opinion! Again, a rarely used / known combination. Todays technologies allow us to build these charts. • Why do we adopt this approach to TA? Its simple to analyse, clear, takes away the noise, removes time (just deals with price), aids trading psychology: easier to make decisions, creates discipline. 12 What’s the difference between the next three chart types: Renko, Kagi and Line Break? They all serve a different purpose. Whether that be spotting a trend, a reversal point an entry or an exit, they all individually give us something that the others don’t, so in combination and together with a particular strategy and market they can make very powerful analysis and trading tools. Renko: very good for Breakouts / trend Following / Reversals Line Break: very good for Reversals (and some Trend Trading) Kagi: very good for Breakouts / trend Following / Reversals To see how different the charts will look like, I’ve laid out a very basic example example…. 13 Example of what the basic Japanese charts will look like using the same hypothetical price data: 14 What would: Line Break, Kagi and Renko charts look like based on the same Stock XYZ Plc data? Line Break Chart: Kagi Chart: Renko Chart: 15 Now it is time to move onto Renko Charts…… 16.
Recommended publications
  • Nikkei 225 Kagi Chart with MACD Applied (Charts: Tradingview)
    Kagi What is it? • Created in Japan, • Been around since 1870’s. • Used to give a much more transparent picture of where the price of an individual asset was headed independent of time. • Ignores time and focus solely on price changes that meet a minimum requirement. • Great for taking the ‘noise’ out of the charts; another great ‘psychological’ helping chart! • Instead of using 'X's and O's like point and figure charts, the Kagi chart simply uses lines. These lines are known as the Yin and Yang lines. • The other fundamental concept of these charts, is that of the reversal in price. The lines change direction once the price moves a set amount. 1 Below you can see a typical example based on the S&P500 stock index (Charts: TradingView). In this example the thicker black line signifies up bullish periods (Yang line) and the thinner red line signifies bearish periods (Yin Line): 2 Also take a look at the same period on the Kagi S&P 500 chart versus the traditional candlestick chart S&P 500 chart. See how much less noise there is on the Kagi chart (Charts: TradingView): 3 Basics: • It is the study of pure price movement i.e. it doesn’t take into consideration ‘time’ when constructing its charts. • Uses simple lines known as ‘Yin’ and ‘Yang’ to measure price. • The lines change direction once the price moves a set amount. • Kagi charting is all about the price reversal. • Normally: Black (thicker) lines indicate bullish periods (Yang Line), Red (thin) lines signify bearish periods (Yin Line) • In my examples: Going Black to Red = Sell, Going Red to Black = Buy 4 Construction: • Step 1 is to calculate the reversal amount.
    [Show full text]
  • Course Brochure
    IFMC INSTITUTE COURSE BROCHURE IFMC BRANCHES NOIDA VAISHALI LAJPAT NORTH CAMPUS GHAZIABAD NAGAR (DELHI) (DELHI) MAAN SINGH SHOP No. - 3, RELIANCE PLAZA, E-90, COMPLEX SECTOR BACK PORTION, PLOT No. 3, FIRST 15 MAIN ROAD, VIJAY NAGAR SINGLE IInd FLOOR, 2, FLOOR, LAJPAT NEXT TO BHAGMAL STOREY NEAR NDPL NAGAR 1, COMPLEX NEAR Mc SECTOR 4, OFFICE NEW DELHI - 110024 DONALD VAISHALI, GHAZIABAD, NEW DELHI - 110009 PH: +919810216889 SECTOR 16, UTTAR PRADESH - PH: 0981060777 +91-810260089 NOIDA – 201301 201012 PH: +919810216889 PH: 9650066987 CONTENTS Technical Analysis Course ....................................................................................................................... 3 Quickest Way to Deal with Stock Market Losses ................................................................................ 3 What is Technical Analysis Course? .................................................................................................... 3 Technical Analysis Meaning: ............................................................................................................... 3 Learning Outcome: .......................................................................................................................... 4 Course Methodology: ..................................................................................................................... 4 Eligibility: ......................................................................................................................................... 5 Career Opportunity:
    [Show full text]
  • Multicharts User Manual
    MultiCharts User Manual Contents Charts ................................................................................................................. 10 MultiCharts Work Area ................................................................................................................................... 10 Understanding Chart Window ........................................................................................................................ 21 Creating Charts ............................................................................................................................................... 22 Volume Analysis .............................................................................................................................................. 30 Volume Profile ................................................................................................................................................ 30 Go To Specified Bar ......................................................................................................................................... 36 Chart Settings ..................................................................................................... 37 Chart Scaling ................................................................................................................................................... 37 Margins ..........................................................................................................................................................
    [Show full text]
  • Trading View Tutorial
    Trading View Tutorial Chart Functions Add The add function allows users to overlay additional symbols or data series over top of the existing chart. This is different than the compare function in that the chart does not change the vertical axis from price to percentage and auto-scale to fit both. The vertical axis stays aligned with the chart's original data series. The new symbol/data series is merely overlaid on top. This allows for the actual price value of both data series to be visible without the chart collapsing if the values are too far apart. The add function is good for visual comparisons between two or more symbols. The example below is an example of a chart containing the EURUSD and the EURJPY. A popular reason for using the add function is the ability to compare market trends for several similar or related instruments simultaneously. For example, analyzing two different gold tracking ETFs to spot minor differences. The example below is a chart containing two separate gold tracking etf's. They are obviously quite closely related but careful examination shows that minor differences do occur. To add a new symbol to overlay on top of the current data series/chart, simply click on the "Add" button on the toolbar along the top of the chart and type the symbol into the dialogue box and click the + sign. Another option is the "Overly the main chart" feature. If this is unchecked, the new symbol will not be overlaid on top of the original data series, it will be sent to a new panel beneath the original one.
    [Show full text]
  • Financial Trading with Five Regularities of Nature: Scientific Guide to Price Action and Pattern Trading
    some strong technical language. Table of Contents Introduction to Five Regularities in the Financial Market 1. Introduction to Technical Analysis 2. Introduction to Charting Techniques 3. The Five Regularities in the Financial Market 4. Random Process 5. Stationary Process 6. Equilibrium Process 7. Wave Process 8. Fractal-Wave Process 9. Equilibrium Wave Process 10. Equilibrium Fractal-Wave Process 11. Choice of trading strategy and Price Patterns 12. Peak Trough Analysis to visualize equilibrium fractal wave 13. Using Equilibrium Fractal Wave Index to Select Your Trading Strategy 14. Appendix-Equilibrium Fractal Wave Derived Patterns 15. References Price Action and Pattern Trading Overview on Practical Trading with the Fifth Regularity 1. Support and Resistance 1.1 Horizontal Support and Resistance 1.2 Diagonal Support and Resistance 1.3 Identification of Support and Resistance with the Template and Pattern Approach 2. Trading with Equilibrium Fractal Wave 2.1 Introduction to EFW Index for trading 2.2 Trading with the shape ratio of equilibrium fractal wave 2.3 Introduction to Equilibrium Fractal Wave (EFW) Channel 2.4 Practical trading with Equilibrium Fractal Wave (EFW) Channel 2.5 Combining the shape ratio trading and (EFW) Channel 3. Harmonic Pattern 3.1 Introduction to Harmonic Pattern 3.2 Harmonic Pattern Trading 3.3 Pattern Matching Accuracy and Pattern Completion Interval 3.4 Potential Reversal Zone 4. Elliott Wave Trading 4.1 Introduction to the Wave Principle 4.2 Scientific Wave Counting with the Template and Pattern Approach 4.3 Impulse Wave Structural Score and Corrective Wave Structural Score 4.4 Channelling Techniques 5. Triangle and Wedge Patterns 5.1 Introduction to Triangle and Wedge patterns 5.2 Classic Perspective of Triangle and Wedge Patterns 5.3 Diagonal Support and Resistance Perspective of Triangle and Wedge Pattern 5.4 Elliott Wave Perspective of Triangle and Wedge Pattern 6.
    [Show full text]
  • Luckscout Ultimate Wealth System
    Candlesticks Signals and Patterns by LuckScout.com Team Copyright 2017 Version 1.1 www.LuckScout.com 1 Copyright and Disclaimer Copyright 2017 by LuckScout.com Team. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, mechanical or electronic, including photocopying and recording, or by any information storage and retrieval system, without permission in writing from the author (except by a reviewer, who may quote brief passages and/or short brief video clips in a review). Disclaimer: The authors make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specially disclaim all warranties, including without limitation, warranties for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the authors are not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, this should be sought from applicable parties. The authors shall not be liable for damages arising herefrom. The fact that an organization or website is referred to in this work as a citation and/or a potential source of further information, does not mean that the authors endorse the information the organization/website may provide or recommendations it may make. Further, readers should be aware that Internet websites listed in this work may
    [Show full text]
  • Renko Chart Overview: Renko a Type of Chart, Developed by the Japanese, That Is Only Concerned with Price Movement,Time and Volume Are Not Concerned
    Renko Chart Overview: Renko A type of chart, developed by the Japanese, that is only concerned with price movement,Time and volume are not concerned. It is thought to be named for the Japanese word for bricks, "renga". A renko chart is constructed by placing a brick in the next column once the price surpasses the top or bottom of the previous brick by a predefined amount. White bricks are used when the direction of the trend is up, while black bricks are used when the trend is down. This type of chart is very effective for traders to identify key support/resistance levels. Transaction signals are generated when the direction of the trend changes and the bricks alternate colors. Renko Chart Style: Every brick (Bare) is the same size and a new brick is drawn one brick size below or above the brick before it. Bricks that are adjacent never overlap. Every brick starts where the previous brick ends. Some Traders can specify the size of bricks in pips. Through our experience we advise to keep brick with size 10 pips. Candlestick Style: is the Time-Frame chart, "time" splits one candle from other by the time-frame you've chosen, the candles are random in their sizes too. Random Open - Random high - Random low - Random close, this is very easy to make you confused & when you change the time-frame the randomness changes to further confuse you. Conclusions Like their Japanese cousins (Kagi and Three Line Break), Renko charts filter the noise by focusing exclusively on minimum price changes.
    [Show full text]
  • An Empirical Study Applying Chart Patterns to Indian Stock Market Crashes
    Pacific Business Review International Volume 6, Issue 11, May 2014 An Empirical study applying Chart patterns to Indian Stock Market Crashes Varun Sarda Abstract Faculty, Acropolis Faculty of Charting techniques are used by analysts to predict the movements of prices in Management Research, Indore Financial Markets. However, most of them are based on the gradual movements of prices though the uncertain environment of today calls for an analysis of the rapid movements. This paper examines Kagi Charting Dr Yamini Karmarkar technique to analyze the Crashes of Indian stock markets based on Qualitative Reader, IIPS, DAVV, Indore parameter of Predictive Efficiency. The period of study is from 1997 to 2011. A crash is defined as a drop of 25% or above from the peak value of Sensex within a duration of 60 days from the peak. The results of the study show that Neha Lakhotia Kagi Charts are able to predict the crash with 100% predictive efficiency for Faculty, Prestige Institute of one of the three crashes analyzed in the study. Management Dewas Keywords: Stock Market, Crashes, India, Financial Markets. Introduction The analysis of securities has been done for years together with the use of charting techniques or technical analysis. Technical analysis involves making the use of recording the historical data on charts, studying these charts to find meaningful patterns and then further using the same to predict the future prices. There are different techniques which are used by professional analysts to recognize the specific pattern of the movements in order to apply it for predictive purposes. The importance lies in the identification of trends and recognition of the end of a trend and start of the movement of prices in the opposite direction.
    [Show full text]
  • The Forex Chartist Companion
    The Forex Chartist Companion The Forex Chartist Companion A Visual Approach to Technical Analysis MICHAEL D. ARCHER JAMES L. BICKFORD John Wiley & Sons, Inc. Copyright © 2007 by Michael D. Archer and James L. Bickford. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate.
    [Show full text]
  • What Are Renko Charts
    How to Trade Using Renko Charts What are Renko Charts You can trace renko chart’s origins to Japan and they were first introduced to the West by Steve Nison in his book “Beyond Candlesticks”. The actual word renko is derived from the Japanese word renga, which means bricks. Renko charts are similar to kagi charts and the three-line break charts except that the renko chart is drawn in the direction of the primary trend and have a fixed size. Renko charts are also similar to point and figure charts as each brick is the same size. So, in order to generate an opposite color, the fixed brick size of the Renko must be exceeded. This of course classifies renko charts as a lagging indicator and in choppy markets can lead to a number of false signals. Renko Chart Example Renko charts are used to determine potential changes in price trend. Below is a chart pattern example with renko bars. Renko Charts Constructing Each Brick The first thing you need to do is construct each brick which are the “building blocks” (get it…) of the chart type. There are two primary methods for building each brick: (1) ATR and (2) set price point. ATR The ATR is a volatility indicator that measures the volatility of a security over a set period of time. To read more on the ATR, please visit this article, which goes into great detail. Average True Range The average true range looks at the high and low ranges of a security of the default 14-day period which creates the red line you see above.
    [Show full text]
  • The Traders Club Weekly Report
    THE TRADERS CLUB WEEKLY REPORT: 10/03/17 CONTENTS: Week in the markets P.4 FX Majors Traded Pairs Summary P.6 US Dollar Index Watch P.7 FX Majors Currency Strength P.8 FOREX FX Major Charts P.9 FX Emerging Markets P.10 FX Emerging Market Chart of the week P.11 FX EM Driver Charts: GSCI, USD Index, MSCI Index P.12 FX Big Impact News P.13 Index Watch: UK FTSE100 P.15 Volume at Price FTSE 100 P.16 Indices Index Watch: US S&P500 P.17 Volume at Price S&P 500 P.18 Index Watch: US Market Sentiment Dashboard P.19 P.17 CONTENTS: Index Watch: Far East: Nikkei 225 & Hang Seng P.20 Indices Volume at Price: Nikkei 225 & Hang Seng P.21 US and UK Equities Short Lists P.23 Equities The ‘FANGS’ P.24 US and UK Sector Analysis P.25 Commodities to Watch P.27 COT & Seasonality Hot List P.28 Commodities Chart of the Week P.29 China Watch P.30 Commodities Precious & Base Metals P.31 Energy P.37 Crude WTI Watch P.38 WTI Brent Spread Strategy P.39 RBoB Gasoline Watch P.40 Week in the markets: US / CAD daylight saving time shift on Sunday, where clocks are moved forward 1 hour. Stories of last week impacting the markets that are likely to roll into next: a US rate rise looming as early as next week, weaker Chinese demand, oil production and storage levels still at highs. Next week: a busy news week ahead! There is the strong prospect of the US raising interest rates Wednesday evening.
    [Show full text]
  • Momentum 124 Momentum (Finance) 124 Relative Strength Index 125 Stochastic Oscillator 128 Williams %R 131
    PATTERNS Technical Analysis Contents Articles Technical analysis 1 CONCEPTS 11 Support and resistance 11 Trend line (technical analysis) 15 Breakout (technical analysis) 16 Market trend 16 Dead cat bounce 21 Elliott wave principle 22 Fibonacci retracement 29 Pivot point 31 Dow Theory 34 CHARTS 37 Candlestick chart 37 Open-high-low-close chart 39 Line chart 40 Point and figure chart 42 Kagi chart 45 PATTERNS: Chart Pattern 47 Chart pattern 47 Head and shoulders (chart pattern) 48 Cup and handle 50 Double top and double bottom 51 Triple top and triple bottom 52 Broadening top 54 Price channels 55 Wedge pattern 56 Triangle (chart pattern) 58 Flag and pennant patterns 60 The Island Reversal 63 Gap (chart pattern) 64 PATTERNS: Candlestick pattern 68 Candlestick pattern 68 Doji 89 Hammer (candlestick pattern) 92 Hanging man (candlestick pattern) 93 Inverted hammer 94 Shooting star (candlestick pattern) 94 Marubozu 95 Spinning top (candlestick pattern) 96 Three white soldiers 97 Three Black Crows 98 Morning star (candlestick pattern) 99 Hikkake Pattern 100 INDICATORS: Trend 102 Average Directional Index 102 Ichimoku Kinkō Hyō 103 MACD 104 Mass index 108 Moving average 109 Parabolic SAR 115 Trix (technical analysis) 116 Vortex Indicator 118 Know Sure Thing (KST) Oscillator 121 INDICATORS: Momentum 124 Momentum (finance) 124 Relative Strength Index 125 Stochastic oscillator 128 Williams %R 131 INDICATORS: Volume 132 Volume (finance) 132 Accumulation/distribution index 133 Money Flow Index 134 On-balance volume 135 Volume Price Trend 136 Force
    [Show full text]