Heikin-Ashi candlesticks are awesome for timing swings and trend changes.
Heikin-Ashi candlesticks are a variation on traditional Japanese candlestick charting. Instead of using the open, close, high, and low prices to draw the bar, the Heikin-Ashi candlesticks are drawn using the following formula:
Open = [Open (previous bar) + Close (previous bar)]/2
Close = (Open+High+Low+Close)/4
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)
The result of these modified values create a chart that eliminates a lot of noise and headfakes. Check out a traditional candlestick chart of the Dow compared to a Heikin-Ashi candlestick chart of the Dow:
Wow! Right? Which chart above would you rather trade? If you said the second chart, you are correct. The second chart is much easier to spot the swings.
Joseph Nemeth says that you can predict the market direction for the day ahead 75% to 80% of the time just by taking the Heikin-Ashi candlestick of the current day. For example, after market close, if the Heikin-Ashi candlestick is red (down) that day, then bet that the next day the market is going to be down. If the Heikin-Ashi candlestick is white (up) that day, then bet that the next day the market is going to be up.
Joseph Nemeth posted this AWESOME video below called How to Kick A$$ in Any Financial Market (and What Brokers & Market Makers Don’t Want You To Know). Check out what Joseph Nemeth has to say about Heikin-Ashi candlestick charts. The video below is set to start from where Joseph Nemeth talks about Heikin-Ashi candlestick charts.
