Using this indicator can give multiple primary signals for when to trade and where the trend is headed.
A white candle will signify an uptrend and a time to add to positions and close out any short.
A white candle with no lower shadow after indicates a strong uptrend and can be used as a buying position or to keep any long trades open.
A candle with a small body surrounded by a candle on each side with upper and lower shadows can signal a trend change. This does have a higher risk and many traders use this along with other indicators for their confirmation of the change.
Red candles indicate a downtrend and they will indications to add to short positions or close out any long positions.
A red candle with no higher shadows indicates a strong downtrend so any short positions you will want to keep open and only close when there is an indication of a trend reversal.
As with any technical indicator, a Heiken Ashi chart will never be 100% correct. False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding Heiken Ashi bars must be developed over time, and complementing the Heiken Ashi tool with another indicator is always recommended for further confirmation of potential trend changes.
This is one of my favorite indicators to use alongside others indicators to spot and confirm trends. Most profits and losses are generated when markets are trending so being able to spot these trends can be extremely advantageous. Many traders prefer to use candlestick charts over line or bar due to it being easier to spot trends and Heikin Ashi helps to smooth this out and show directional movement clearly. One of the best reasons to use this indicator is due to its simplicity and at a glance, you can gather a greater amount of information about where the market is moving.
Looking at the below candlestick chart, all the small market movements that may show a change of direction against the trend are removed.
The above chart shows a simple trading strategy you can perform with these candles. I have started with a top level where there are at least 2 white candles giving an indication of a change in trend. You then would just need to enter the order with a sell and hold a stop loss a few pips higher than the entry to limit the risk. The exit on this trade will take place once there is a change in colour for the candle to signify a change. Now this does happen midway through the downtrend which is where you would close out the position. The next candle does not confirm the individual white candle so you can get back into the short position until the next colour change.
Although there can be false signals to open and close trades on balance it will be more often right than wrong and the profit made on the winning trades can far outway the losing trades.