The importance of charts in binary trading is unquestionable. We can see a simple example to understand that. Suppose you generally want to trade in gold; what do you do first? Obviously, see the price chart and view the price movement. That’s because its prices keep on fluctuating.
Binary trading is also unpredictable, with fluctuations happening every second. So, charts play an indisputable role in guiding a trader. But, seldom may you have come across the Heikin Ashi chart! Therefore, here we shall focus on the particularity of this chart for binary options.
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What are Binary Options Heikin Ashi Charts?
The term Heikin Ashi originates from Japan and signifies the average bar in a chart. It comes in concurrence with a regular candlestick chart in binary trading. However, the difference is that in the regular candlestick charts, you don’t use the Heikin Ashi formula. The Heikin Ashi chart is a better variant of the candlestick charts that use the Heikin Ashi formula to produce a better result.
The Heikin Ashi chart results from a technique developed by Munehisa Homma in the 1700s. Under that technique, a formula based on several factors reduces the market noise in a regular Japanese candlestick chart. So, it eventually allows it to produce a more focused result.
Now, it is essential for us to understand the Candlestick before stepping forward.
The Heikin Ashi technique explained
It is nothing but a formula-based approach to the regular Japanese candlestick charts. The technique modifies the standard Candlestick to reveal a smoother chart. Such a chart is devoid of the usually occurring market noise.
That makes this technique effective in filtering out the hindering elements.
The main application of the Heikin Ashi technique is through the formula that goes into assigning the unique values to the candles.
Even after applying this technique, the chart will share likenesses with the standard Candlestick. But, a trader can distinguish a Heikin Ashi chart by noticing different values that go into creating each candle.
So, this technique basically assigns different values to each candle. Moreover, the standard candlestick charts use either high or low values or a combination of closing-opening values. However, the Heikin Ashi technique uses the formula that consists of a modification through the averages of two periods only.
That is what eventually results in a smoother appearance minus the market noise. A binary options trader benefits from it by being able to spot trends and reversals much more easily. She can also view the dim gaps and price data for a better assessment.
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Heikin Ashi chart construction
The chart’s construction may sound like a lengthy process for anyone new. However, we would like to debunk that notion as the process is fairly straightforward.
The Heikin Ashi charts’ construction is no different from the regular candlesticks. However, the main difference arises with the use of the formula. Also, while constructing the chart, the formula for each bar’s calculation stays different and not in a combination.
When you construct the Heikin Ashi chart, you have the ability to define the time series. So, it is left to the trader to create the chart for daily or hourly breaks. It is also possible for you to reduce the gaps by as low as five minutes.
While constructing, the trader must know that the filled candles shall represent the downtime, whereas the empty ones signify the up period.
Many brokers like IQ Option and Quotex, when it comes to the construction of the Heikin Ashi charts, may also give a choice to color the charts. Though it depends on the broker’s platform, you can keep the up period as green or white and the low period as black or red. More options may be available, but these are the commonly preferred colors for the respective charts.
How to use them?
The usage of the Heikin Ashi charts will depend on your broker’s charting software. However, nowadays, the top brokers like IQ Option and Quotex come with an inbuilt option for that. Now, the primary use of this chart is to identify signals and tell you the buying opportunities. So, you must focus on certain signs to make full use of them.
For example, when you find hollow or green candles devoid of shadows, it may signify an uptrend. In contrast, a binary trader should seize the chance to add into short positions and exit the long ones when there is an indication of a downtrend. Red-colored candles or the filled ones may indicate that.
While using these charts, if you come across the small-bodied candles, it will indicate the upcoming change in trend. You can identify the trend based on the surrounding upper or lower shadows.
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The use of strategies
The Heikin Ashi charts may serve you with beautiful results that reduce the market noise, appear smoother, etc. Moreover, the brokers like Quotex and IQ Option promote the use of this charting method as a better way of candlestick chart usage.
However, the use of sound trading strategies should always be in the mind of a smart trader. Without using strategies, no matter how good the charting method is, you reduce the chance of winning trades. Henceforth, let’s ponder the commonly used strategies that work with standard candlestick charts so that you may use them for your binary options trading and put the charts to better use.
- Pin-bar reversal pattern strategy
The pin bar becomes visible with the price down or up in a single period. However, for that, the closing price should stay with the bar previous to it. A trader must identify two pin bars representing a bullish and bearish trend in the pin-bar strategy. After the identification, the trader waits to enter the market depending on the asset price to break above or below.
- Doji strategy
You can identify a Doji candlestick as a cross or plus sign. It can also appear inverted at times. This strategy suggests that once the Doji formation is visible, it is an indication of market uncertainty. But, considering the Doji bar’s location, if it forms during a strong trend and the price breaks above the Doji, you can take it as a signal for continuation.
Tips and tricks while trading Binary Options with Heikin Ashi
Even though a trader can expect an advanced use of candlestick charts through the Heikin Ashi approach, trading may ask more. Charts are just one element in the whole trading process. Whether you master the use of charts is what constitutes the core of trading charts application.
Just modifying a regular candlestick chart through formulae into a refined chart does not guarantee winning trades. Therefore, to use these charts for the best profitable results, one needs to master them by applying them in different trading situations.
Also, while doing that, a trader may experience doubt in instincts. As an effective resolution for the same, we have comprised some of the best tips and tricks to use the charts to the most profitable levels.
Watching for the surfacing of a strong trend: Bullish or Bearish
The trader can employ this technique to determine the start of a robust trend that could be an uptrend or a downward trend. Usually, the broker’s Heikin Ashi signal indicators are reliable.
Hence, when a trade signal indicates a bullish or bearish trend, a binary trader should seize the chance. For example, a strong bullish trend can offer the right opportunity to traders possessing short positions. The contrary may help the long-term traders.
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Identification of no shadows candlesticks
If a trader successfully identifies Candlestick with no shadows, that could be a sign of a bullish trend. The trick of identifying the no shadow candles is proven to give you an increased win rate.
So, when you are using this trick, all you require is to ensure the presence of a greater trail. The higher the trail, the stronger the trend shall be. The reverse is applicable for traders who look for a bearish trend. They should seek the no-upper shadow candles.
Small-bodied candlesticks indicate trend pauses or reversals
A trader should be aware of the appearance of a small-bodied candle. It is one area where many newbies make the mistake of ignoring them. A small-bodied candlestick may not be appealing enough like the Dojis or the upside-down crosses we discussed earlier. So, the trader is solely responsible for keeping an eye over these small-bodied candles. One should not miss a great sign as a result of ignorance which could have been helpful in enhancing the trades.
Such candles may indicate that the pause or reversal of the trend is to occur. So, if a binary trader does not miss the sign, opening a new position as the ending trend’s response is possible.
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Understanding the Candlestick in Binary Options trading
Be it binary options or any asset trading, a candlestick is just a price chart. Stressing upon the need for a price chart is insignificant, as any trader would understand it. Understanding the price movements will take a toll without a proper price chart.
A candlestick chart becomes an effective tool because of the same fact. Apprehending a candlestick is not problematic as it is a price movement-based chart that uses past patterns as the driving factor.
The main use of this type of chart becomes visible in technical analysis. This chart is useful in displaying the low and high prices of a particular asset. A trader can also get to know the opening and closing prices of the same asset for a certain period.
The concept of a candlestick chart finds its origin from Japanese rice merchants. Years before its popularization, they put this method into use for keeping track of prices and market momentum.
Candlestick Patterns or charts
A candlestick chart is distinguishable through its real body, which is also its wide part. A binary options trader will understand whether the closing or the opening price was high before closing. Usually, you can confirm that as lower if the color is black or red. Whereas, if the price closes higher, it shall be either white or green.
What happens with a regular candlestick is that the interference of market noise produces an uneven appearance? When the Heikin Ashi formula or the technique comes to play, it reduces the noise and produces a smoother appearance on the chart.
Market Noise filter:
The market noise is something that every binary options trader must try to reduce as much as possible. We can form an idea of it broadly as any information contributing to the misrepresentation of trends. The presence of market noise will only confuse the trader and lead to poor decisions.
The main reason for a trader to make unfruitful decisions is sometimes just because of the unwanted market noise with a regular candlestick chart. The noise may arise in the form of a small price correction or even price fluctuations. Such fluctuations, which are often termed volatility, can become a leading cause of the trend’s distortion.
Thus, a Hekin Ashi chart modifies the vulnerabilities of a regular candlestick and can reduce the distortion effectively. Maybe that is why trading experts term it a better candlestick chart for binary options traders.
Conclusion: Hekin Ashi charts a good for trend trading
Heikin Ashi charts may serve you with better results than candlesticks. However, the creation of Heikin Ashi charts does not suggest that the regular candlesticks aren’t useful enough. One should not undermine the importance of candlesticks in any manner. Just the advantage is that the Heikin Ashi method can fill in the loopholes of the regular candlesticks and filter out unnecessary elements.
Therefore, using it can be a step towards trading excellence, but the choice depends entirely on the trader. Advanced traders exist who excel without any special modifications to the regular candlesticks.
But, should you choose the Heikin Ashi charts, the knowledge of regular candlestick charts and the functioning of Heikin Ashi is necessary before incorporating them. Therefore, the above discussion covers all the relevant factors that revolve around its functioning and effective use.
(Risk warning: your capital can be at risk)
