Confirm Forex Momentum With Heikin Ashi Investors and forexoma heikin ashi forex are always looking for an edge in determining the strength and direction of trends. The Heikin Ashi application is one tool that may be able to provide this edge.
Before we get into the actual application of the Heikin Ashi, let’s dive into some logistics involving the real meaning behind it. Usually a type of candlestick chart, the Heikin Ashi is available on some charting packages as a separate indicator. This allows investors or speculators to make a side-to-side comparison between the standard candlestick and the Heikin Ashi, allowing for a more cohesive interpretation. The reason the Heikin Ashi tends to be smoother is because instead of using a simple low and high of the session to calculate individual candles, the Heikin Ashi takes the prices per bar and averages them to create a “smoother” session. This is key because the currency markets tend to offer traders more volatility and market noise in the price than other markets. By plugging formulas into each individual session to construct consecutive candles, the chart continues to be reflective of the underlying price action, isolating the price and excluding currency market volatility and noise. The resulting picture gives the trader a more visually appealing perspective, and one that can help in identifying the overall trend.
There is strong uptrend momentum in the session and it will likely continue. Here, the trader will have a hands-off approach to profits while strongly considering adding on to the position. Strength continues to support the price action higher. At this point, with upside potential still present, the investor will likely consider the notion of adding to the overall position. A smaller candle body with longer wicks: Similar to the doji candlestick formation, this candle suggests a near-term turnaround in the overall trend. Signaling indecision, market participants are likely to wait for further directional bias before pushing the market one way or the other.
Traders following on the signal will likely prefer confirmation before initiating any positions. Weakness or negative momentum is supporting the price action lower in the market. As a result, traders will want to begin exiting initial long positions or selling positions at this point. Selling momentum is strong and will likely support a move lower in the overall decline. As a result, the trader would do well to add to existing short holdings. Heikin Ashi will act to confirm the overall trend of the price action.