Among the different charts offered on the IQ Option platform are the Heikin Ashi candles. This is a candlesticks chart that's a hybrid of the traditional Japanese candlesticks chart. This guide will teach you more about this chart type and, how to trade using it on the IQ Option platform.
- 1 Heikin Ashi candles explained
- 2 Setting up Heikin Ashi candles on IQ Option
- 3 Trading using Heikin Ashi candles on IQ Option
- 4 Are Heikin Ashi candles better?
Heikin Ashi candles explained
If you take a look at Heikin Ashi candles, they're pretty much similar to Japanese candles. They have a body and wicks. However, their difference lies in how they're created.
How to calculate Heikin Ashi candles?
These candles use the open and close prices from the previous period as well as the open, close, high and low of the current period. Each candle's formula is calculated as follows:
- Close = Open of current period + High of current period + Close of current period + Close of current period / 4
- Open = Open of previous period + Close of previous period / 2
- High is the highest value among the high of current period or, the open of the current period or, the close of the current period
- The low is the lowest value among the low of the current period or, the open of the current period or, the close of the current period
Heikin Ashi candlesticks are a great technical analysis tool used to identify trends and potential reversal points on the price chart. They're especially good for placing long positions.
From the chart above, you'll notice that multiple bullish or bearish candles appear consecutively. This makes Heikin Ashi candles great for entering trades that last 5 minutes or more.
Setting up Heikin Ashi candles on IQ Option
Once you've logged into your IQ Option trading account, click on the charts feature and select Heikin Ashi.
Trading using Heikin Ashi candles on IQ Option
As mentioned before, Heikin Ashi candles are best for trading long positions. If you're using 1 minute interval candles, your trades should last at least 5 minutes. A word of caution though. You should only enter a trade when there's a clear trend developing. If there's no trend, you'll notice that the blue and red candles keep alternating.
Trading with Heikin Ashi candles without any indicators
One way to trade using Heikin Ashi candles is by using them without any indicators. All you need to do is observe the candle colors.
Using the chart above, it's clear that the markets are ranging. However, an uptrend finally develops. This is signalled by a long bullish candle. This marks your trade entry point. Since I'm using 1-minute interval candles, the trade should last at least 5 minutes.
If you prefer to hold the position for 15 minutes or more, you should use 5-minute interval candles.
Using Heikin Ashi candles alongside the Stochastic Oscillator indicator
Like traditional Japanese candles, Heikin Ashi candles can be used alongside popular indicators. In this example, I'll use the Stochastic Oscillator. This indicator is usually used to predict possible trend reversal points in your price chart.
To learn more about it, the Guide for Using the Stochastic Oscillator to Trade Trend Reversals on IQ Option will get you started.
Using the chart above, your objective is to identify the points where the %k (red) line crosses the %d (blue) line and moves above or below it. You should also look at the overbought or oversold lines. If these lines cross each other while moving from the overbought or oversold areas, it's a good time to enter a long position.
Notice that when the %k line crosses the %d line and moves below it, an uptrend is developing. Here, you should enter a buy position lasting at least 5 minutes. Conversely, when the %k line crosses the %d line and moves above it, a downtrend is developing. Here, you should enter a sell position lasting at least 5 minutes.
Are Heikin Ashi candles better?
The Heikin Ashi chart is another form of presenting price data over time. These candles look very similar to Japanese candles. However, it is important to note that their OHLC values do not represent the actual OHLC values of a candle. These values are mathematically transformed, so the Heikin Ashi itself acts in a way like a technical analysis indicator. Thus, the Heikin Ashi candles contain additional information, and when combined with an indicator such as the aforementioned Stochastic Oscillator, they can be a good trading strategy.
Japanese candlestick charts, on the other hand, have the added advantage of identifiable candlestick patterns, which also have predictive value. Candlestick patterns cannot be used on Heikin Ashi candles.
Both can be used in trading regardless of which style of investment you prefer. Both day trading and swing trading use both chart formats.
Now that you've learned how to use Heikin Ashi candles, try them out on your IQ Option practice account. We'd love to hear about your results in the comments section below.
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