Stocks & Commodities V.26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort INDICATORS Visual, Digital Candlesticks Trading With The Heikin-Ashi Candlestick Oscillator This visual tool complements candlesticks that will help you enter and exit trades, resulting in higher profits per trade. by Sylvain Vervoort to have a complementary visual aid when looking at a candle chart. Figure 1, a daily chart for Ford Motor Co., uses an expert function for color-coding the candlesticks. On November 21, 2006, the price falls through the uptrend line after a number of green candles. This means it’s time to close any long position and open a new short position. As long as there are red candles, we will keep the short trade open. On December 20, 2006, there is a new green candle. Drawing a downtrend line up to this point, we see that it is broken to the upside. It’s time to close the short position and open a new long position. On February 13, 2007, we have a first red candle. Drawing the uptrend line, we see that the closing price remains above nalyzing a candlestick chart gives a good idea of what is going on in the market. Candlestick patterns, resistance or support from price pivots, rising or falling windows, and the use of trendlines are all excellent technical trading tools. But initiating a trade and deciding when to close it, candle after candle, remains a difficult task. It would be nice A Copyright (c) Technical Analysis Inc. 5 32. In the 3 30 6 13 20 27 4 11 18 26 3 16 22 29 5 12 20 26 November December 2007 February daily chart of Sysco Corp. normal candles 33 32 31 30 29 28 27 Heikin-ashi color-coded candles 34. Want to know how this is done? Of course you do.9 7. so we close the long position eventually.0 28. the heikin-ashi through the uptrend line. The price continues above the trendline and the candles are turning green again. 34 SYSCO Corp. The short trade is open till the downtrend line is broken to the upside. Now. I am going to color-code the normal candle chart with We do the same for creating a red candle with this second the information from the heikin-ashi chart.8 the uptrend line. A white heikin-ashi candle will paint the normal candlestick green and a black heikin-ashi candle will paint the normal candlestick red.7 8. A white heikinformula when the heikin-ashi closing price is smaller than ashi candle will paint the normal candlestick green and a the opening price and we link red to it. black heikin-ashi candle will paint the normal candlestick red. A good starting point is the heikin-ashi† chart. METASTOCK THE STARTING IDEA .1 8. the heikin-ashi chart is very consistent.4 8. ClHa:=haC>=haOpen. On February 22. there is another red candle. the uptrend line is broken. the red candle function is only executed if the green candle function has a negative outcome (not true).5 8.2 7.1 7.2 8. haC:=((O+H+L+C)/ The execution priority is a green candle followed by a red candle. heikin-ashi candles 10 July 28 27 25 2 9 17 24 31 7 14 21 28 5 11 18 10 July 17 24 31 7 14 21 28 5 11 18 25 2 9 August September October August September October FIGURE 2: THE HEIKIN-ASHI CHART. opening a new short position.0 27.0 33.5 33.6 8.9 6. To do this in {red candle} MetaStock.haOpen)+Min(L. A short trade can be opened when price falls ashi chart on the bottom. in Figure 2.0 6.0 29. 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort 9. you can see the traditional candlestick chart on the top and the heikin.8 8. Visually. we first haC:=((O+H+L+C)/ introduce the formula to create a green candle when the 4+haOpen+Max(H. As you can see.9 8. The color-coded candlesticks make daily followup easy and relaxing. 2007.-1)+PREV)/2.5 29.0 8. In the highlights tab of the expert editor. As a rule. In an 4+haOpen+Max(H. we create an expert function and link it to the haOpen:=(Ref((O+H+L+C)/4.0 33 32 31 30 29 28 27 33 32 31 30 29 SYSCO Corp. The result can be seen in Figure 3. ashi opening price and we link a green color to a positive ClHa outcome: {green candle} haOpen:=(Ref((O+H+L+C)/4.5 27.0 30.0 7. we will wait for the next day. First. Here you see a traditional candlestick chart on the top and a heikin-ashi chart on the bottom.haOpen)+Min(L.5 31.5 30.FIGURE 1: COLOR-CODED CANDLESTICKS.0 32.-1)+PREV)/2. FIGURE 3: COLOR-CODING USING INFORMATION FROM HEIKIN-ASHI.5 28.7 7.8 7.haOpen))/4. heikin-ashi closing price is greater than or equal to the heikinClHa:=haC<haOpen. candles look very consistent.1 9.haOpen))/4.3 7. That way.4 7.5 7. In a downtrend. Copyright (c) Technical Analysis Inc.6 7. uptrend.Stocks & Commodities V.3 8. we see mostly black candles with no or small upper shadows. there are mostly white candles with no or small ClHa lower shadows.0 31. chart. 0 14.5 15.or downtrend.Stocks & Commodities V. In this case.5 22 28 4 11 19 25 3 10 17 24 31 7 14 21 28 5 12 19 27 2 February March April May June FIGURE 4: NOT A PERFECT WORLD.0 3 10 17 24 31 7 14 21 28 5 12 19 27 March April May FIGURE 5: AS GREEN AS POSSIBLE.5 16.0 16. Wouldn’t it be great if prices were moving like that all the time? But as we know all too well. results are not always going to be as positive as what you see in the Sysco chart.0 14. 1))) {red candle} haOpen:=(Ref((O+H+L+C)/4.-1))) 4+haOpen+Max(H. ClHa OR (Ref(ClHa.haOpen))/4.haOpen))/4.At the price pivot point levels. ClHa {red candle} haOpen:=(Ref((O+H+L+C)/4. 16.haOpen)+Min (L. We will employ the zero-lag crossover system that I introduced in my article in the STOCKS & COMMODITIES May 2008 issue. All single-day reactions can be eliminated by extending a previous green candle by at least one more bar. ClHa:=Alert(haC<haOpen.2).5 16.5 15.5 14. Note in Figure 4 how the colors are less consistent and much less usable for entering or exiting a trade.1)+PREV)/2.0 15. 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort 17.haOpen))/4.haOpen))/4.0 13.5 14. average (TEMA) of 34 bars.haOpen)+Min (L. I am using a triple exponential moving haOpen:=(Ref((O+H+L+C)/4. The code can be found here (upper left) in the sidebar.2).haOpen)+Min smaller or bigger if you want to allow less or more price (L. Here. there is a nice range of red candles in the downtrend and a longer series of green candles in the uptrend. ClHa:=Alert(haC>=haOpen.0 14. reaction. the colors are less consistent and cannot be used for entering or exiting a trade. You may want to make that value haC:=((O+H+L+C)/4+haOpen+Max(H. ClHa:=Alert(haC>=haOpen. we will use a fast crossover system to allow a minimum price reaction while still being very fast at the turning points. .haOpen)+Min(L. often there are doji candles or spinning tops or bottoms with a small body compared to Copyright (c) Technical Analysis Inc. haC:=((O+H+L+C)/ 4+haOpen+Max(H.0 15. or if it is a white candle (close above open).5 14.-1) AND (C<O OR C<Ref(C. there must be room for some price reaction. First. In Figure 6 you can see that another two red candles are eliminated by this second step. haC:=((O+H+L+C)/ 15.2). ClHa:=Alert(haC<haOpen.5 16.0 NOT A PERFECT WORLD Unfortunately. we change the green candle and red candle formulas as follows: {green candle} haOpen:=(Ref((O+H+L+C)/4.0 13. haC:=((O+H+L+C)/4+haOpen+Max(H.2). The second step is to see if the new candle comes after a green candle.-1)+PREV)/2. this adds eight more green candles in the uptrend (Figure 5). there is no need to change the color because the bars still point in the direction of the uptrend. Let’s try some techniques to keep the bars as green as possible during an uptrend.5 15.-1) AND (C>=O OR C>=Ref(C. we can eliminate all single-day reactions by extending a previous green candle by at least one more bar.” We consider an uptrend (green candle) when ZlDif is equal {green candle} to or greater than zero.1)+PREV)/2. It is clear that in any up. the market is not going to move perfectly all the time. The green candle and red candle formulas have now been changed as follows: In the third step. ClHa OR (Ref(ClHa. In the TWX example. To do this. If it is the latter. ClHa But a number of red candles are still left that we would like to eliminate in the uptrend. with little delay at turning points.5 16. “MetaStock crossover formula.-1)+PREV)/2. Diff:= TMA1 . To eliminate them. The idea is not to trust this system blindly. TMA1:= Tema(haC.5 14. When you are the price remains above the uptrend line within the uptrend faced with a reversal signal.haOpen)+Min(L.-1) + PREV)/2. Here we would expert editor. the “_Downtrend_HA” expert. But there are stay short as long as there are red candles. . The through the previous top to form an uptrend channel. We have drawn a parallel line The first red candle here is the reversal signal for going short. followed by the (green candle) SVAPO is below the lower reference line.haOpen))/ 4. ZlDif 16.5 16. That step is not 14. but now with an inverse execution order closing price remains well above the last support line. So we are now looking at the “_Uptrend_HA” candle keep us in an uptrend and detect a downward trend reversal.Stocks & Commodities V. This tells when to close it. suggesting a higher chance of an up move.avg). TMA1:= Tema((H+L)/2. chart. During analysis techniques to make an intelligent decision. TMA2:= Tema(TMA1. ZlDif:=ZlCl-ZlHa. The final FIGURE 6: DO THE BARS POINT IN THE RIGHT DIRE C TION? We can take this one step further and eliminate result can be seen in Figure 7. Initiating a trade and deciding steeper trendline that has been broken downward. In early March.0 14. supported by more than one technique. In addition.” The order of execution is first the formula (green candle) and then the red candle only when the green candle is false. haC:=((O+H+L+C)/ 4+haOpen+Max(H. At (5) Copyright (c) Technical Analysis Inc. We are combining this chart with a fast indicator like What we need next is an equally effective expert for a my SVAPO (see my article in the November 2007 issue of downtrend. the last step. You may receive reference line.avg). There are now only green candles during the entire uptrend. a graphic of KBH. we have a second selling signal at (3). more red candles in an uptrend. I must introduce a last step. but signals to exit a trade when it is probably better to hold onto the trade.0 16. From making a top above the upper SVAPO reference line. haOpen:=(Ref((O+H+L+C)/4.5 16.5 changing the green color when the previous candle is green and the size of the real 14.0 body is smaller than 35% of the full high– low range. The price remains candle. preferably this activity.0 15. The next selling signal appears in the first half of April. shows a downtrend. we would close the short position and eventually open a above the uptrend line within the uptrend channel and a closing price above the last support while SVAPO is below the lower long position.5 15. 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort METASTOCK CROSSOVER FORMULA avg:=34. there is no perfect system. we had a red selling bar at (2). Drawing uptrend lines at this point shows a third.avg). suggesting the possibility of an up move for the following bars. Or you can create another expert and call it “_Downtrend_HA” with the same formulas to be introduced hold on to the long position at least for one more day because the in the expert editor. In the lower part of the chart. At the end upper part is the expert function “_Downtrend_HA. The price continues to move up and reaches the upper side of the trend channel. Unfortunately. the high must be 17 24 31 7 14 21 28 5 12 19 27 higher than the previous low to make sure April May there is no window in between. For this we can simply reverse the execution STOCKS & COMMODITIES) to find out if there is a greater order and put a red candle on top of a green candle in the chance for a move up or down. ZlHa:= TMA1 + Diff. Figure 9 illustrates the use of combined techniques. candle after us it is time to sell.” We will of March. We have an uptrend line drawn from the beginning of the Figure 8.TMA2. With the first green enough reasons to hold onto the position. we used the expert function “_Uptrend_HA.0 15.” up move through the low at (2). we receive a buy signal at With the green candle uptrend expert we have a useful tool to (1). SVAPO is moving up. remains a difficult task. you must use all available technical channel and a closing price above the last support.avg). ZlCl:= TMA1 + Diff. We get a sell signal on the first red candle. formula.5 15.0 the high-low price. and — formula (red candle) first. TMA2:= Tema(TMA1.TMA2. The complete expert formula “_Uptrend_HA” can be found in the sidebar “MetaStock and candle. Diff:= TMA1 . keepall:=keeping OR (Ref(keeping.0 14. keeping:=keep1 OR keep2. Diff:= TMA1 . haC:=((O+H+L+C)/ 4+haOpen+Max(H.avg). keepall:=keeping OR (Ref(keeping.-1)). It has either a value of zero for a red candle or “1” for a green candle.-1)).haOpen)+Min(L.0 price drops through the last steeper uptrend line and we get another red selling bar.-1).-1) AND keep3)=1.5 15. haOpen:=(Ref((O+H+L+C)/4. dnw:=utr=0 AND Ref(utr.-1) AND keep3).0. keepall:=keeping OR (Ref(keeping. HACO is a digital oscillator version of the colored candlesticks. utr:=Keepall OR (Ref(keepall. TMA2:= Tema(TMA1.avg).Stocks & Commodities V.” On the chart of General Electric (GE) in Figure 10. The MetaStock code for the HACO can be found in the sidebar “The heikin-ashi candlestick oscillator (HACO). We can go one more step further and eliminate any dojis. keep2:=ZlDif>=0.0 14. which I will explain next. keep3:=(Abs(C-O)<(H-L)*. Diff:= TMA1 .35 AND H>=Ref(L. when price drops out of the trend channel. you’ll see the HACO on the top subchart.-1) + PREV)/2. keep3:=Abs(C-O)<(H-L)*.-1) AND dtr. keeping:=(keep1 OR keep2). Diff:= TMA1 . TMA1:= Tema((H+L)/2. ZlHa:= TMA1 + Diff.-1) AND dtr.-1) AND (C<O) OR C<Ref(C.PREV)).0 15. result:=If(upw. keepall:=keeping OR (Ref(keeping.-1) AND keep3). The basic formula is taken from the green candle and the red candle out of the “_Uptrend_HA” expert. TMA1:= Tema(haC. result:=If(upw. ZlCl:= TMA1 + Diff. If you prefer using an oscillator instead of color-coded candlesticks.1.-1)). keeping:=(keep1 OR keep2). TMA1:= Tema((H+L)/2.1. result=0 Copyright (c) Technical Analysis Inc.35 AND H>=Ref(L. selling signals appear at (6) when the closing price drops through the last support line. This is a good profit-taking moment.avg).-1) AND (C<O) OR C<Ref(C.0 16. result {red candle} avg:=34.2).avg). keep1:=Alert(haC>=haOpen.PREV)). keeping:=keep1 OR keep2. keep3:=Abs(C-O)<(H-L)*.-1)).-1) AND utr.TMA2.avg). utr:=Keepall OR (Ref(keepall.2). haC:=((O+H+L+C)/ 4+haOpen+Max(H.haOpen)+Min(L.35 AND L<=Ref(H. TMA1:= Tema(haC.If(dnw.avg).2). dtr:=If(Keepall OR (Ref(keepall.2). keep1:=Alert(haC<haOpen.0.-1) AND utr. keep2:=ZlDif<0. you can use the heikin-ashi candlesticks oscillator (HACO). TMA2:= Tema(TMA1.If(dnw. INTRODUCING HACO 15.-1)).TMA2.5 3 10 17 24 31 7 14 21 28 5 12 19 27 2 March April May June FIGURE 7: TWEAKING THE TREND EVEN FURTHER.-1) AND keep3)=1.0).TMA2.-1)).35 AND L<=Ref(H. keep1:=Alert(haC<haOpen.avg). upw:=dtr=0 AND Ref(dtr. keep1:=Alert(haC>=haOpen. and at (7).5 14. haOpen:=(Ref((O+H+L+C)/4.haOpen))/4.1. dnw:=utr=0 AND Ref(utr.0). TMA2:= Tema(TMA1.-1) + PREV)/2. and other similar patterns. upw:=dtr=0 AND Ref(dtr.5 15.TMA2. Diff:= TMA1 .5 14. keep3:=(Abs(C-O)<(H-L)*. ZlDif:=ZlCl-ZlHa.1.5 16. TMA2:= Tema(TMA1. I have colored the price chart so METASTOCK AND THE LAST STEP (Note: The MetaStock expert for an uptrend is “_Uptrend_HA”) {green candle} avg:=34.-1) AND (C>=O) OR C>=Ref(C. Next. . keep2:=ZlDif>=0.-1) AND (C>=O) OR C>=Ref(C. 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort 16. dtr:=If(Keepall OR (Ref(keepall. ZlCl:= TMA1 + Diff. ZlDif:=ZlCl-ZlHa.haOpen))/4.avg). keep2:=ZlDif<0. spinning tops or bottoms.-1).5 16. ZlHa:= TMA1 + Diff.0 13. 5 21. generating more net profit.0 23.0 22. Basically.0 ADDITIONAL READING Mulloy. Volume 26: May. Sylvain [2008]. Volume 22: February. you can probably avoid a short position in GE for just a couple of days. HACO is not meant to be an automatic trading system.0 20. it will work fine most of the time. “Smoothing Data With Less Lag. studying and using technical analysis for more than 30 years. “Short-Term Volume And Price Oscillator. Here you see red candle and green candle formulas. HACO will certainly aid in signaling buy and sell opportunities and help you hold onto a trade.5 23.org/.0 24. You can change the input value in the HACO for the zero-lag TEMA in the up and down moves. If you use different values. make sure it is confirmed by other technical analysis techniques. publisher. Copyright (c) Technical Analysis Inc.0 21.” Technical Analysis of STOCKS & COMMODITIES. making it more profitable. Dan [2004]. Patrick [1994]. . Using trend charts with a fast indicator like SVAPO adds confirmation to your buy/sell decisions. _____ [2007]. Volume 25: November. In early 2004.0 18.5 24. Valcu. “The Quest For Reliable Crossovers. “Using The HeikinAshi Technique. As long as there are red candles. it’s best to stay short. you would use the same value for both entries.” Technical Analysis of STOCKS & COMMODITIES.” Technical Analysis of STOCKS & COMMODITIES. It can be used on charts of any time frame ranging from intraday to monthly.” Technical Analysis of STOCKS & COMMODITIES. He is an independent trader. This is because using different up and down TEMAs will mean no synchronization between the up and down components. Sylvain Vervoort may be reached at his website at http://stocata. Vervoort. Volume 12: February. 5 6 7 3 4 1 2 25. so when there is a buy or sell signal from HACO. writer.3) -5 2008 February March April May June FIGURE 9: COMBINING TREND CHARTS WITH SVAPO.5 19. Sylvain Vervoort lives in the Flemish part of Belgium and is a retired electronics engineer.5 22.Stocks & Commodities V. 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort 55 50 45 55 50 45 2 20 26 5 March 12 19 26 2 9 April 16 FIGURE 8: DOWNTRENDS.5 25.0 19. you can easily see the periods with a long position (green) and with a short position (red).5 18. 0 SVAPO(1. The behavior of HACO is closely related to the level and speed of price change.5 20. but there may be some unexpected results. and educator in the area of technical analysis and options. 0 November 2004 February March April May June S&C FIGURE 10: HACO.-1). result —S. keeping:=keep1 OR keep2. ZlDif:=ZlCl-ZlHa.1. ZlHa:= TMA1 + Diff. ZlCl:= TMA1 + Diff.Stocks & Commodities V. ZlCl:= TMA1 + Diff.-1) AND utr.TMA2.haOpen))/4. Diff:= TMA1 .avg). keep3:=(Abs(C-O)<(H-L)*.avgdn). avgdn:=Input(“Down TEMA Average: “. Copyright (c) Technical Analysis Inc.35 AND L<=Ref(H. keepall:=keeping OR (Ref(keeping. dtr:=If(Keepall OR (Ref(keepall.-1) AND (C>=O) OR C>=Ref(C.0 28.-1)).avgdn). TMA1:= Tema(haC.100. result:=If(upw. TMA1:= Tema(haC. Diff:= TMA1 .avgdn).1. TMA2:= Tema(TMA1. ZlDif:=ZlCl-ZlHa. keepall:=keeping OR (Ref(keeping.PREV)). Diff:= TMA1 .-1) AND dtr.5 32.5 28. .0 27. ZlHa:= TMA1 + Diff.0).5 30.-1)). keep3:=Abs(C-O)<(H-L)*.2).V.100. keep2:=ZlDif>=0. utr:=Keepall OR (Ref(keepall.34).0 29. keep1:=Alert(haC<haOpen.0. TMA2:= Tema(TMA1.-1)). TMA1:= Tema((H+L)/2. keeping:=(keep1 OR keep2).1.-1) AND keep3). Diff:= TMA1 .0 31.5 33.TMA2.avgdn).0 32. keep2:=ZlDif<0.5 30.-1) AND (C<O) OR C<Ref(C.5 27.avg). 26:12 (50-57): Trading With The Heikin-Ashi Candlestick Oscillator by Sylvain Vervoort THE HEIKIN-ASHI CANDLESTICK OSCILLATOR (HACO) {HACO} avg:=Input(“Up TEMA average: “.5 29.haOpen)+Min(L.-1) AND keep3)=1.If(dnw. The long positions are displayed in green and short positions in red.5 34.avg).35 AND H>=Ref(L. TMA2:= Tema(TMA1.-1) + PREV)/2. TMA2:= Tema(TMA1. haC:=((O+H+L+C)/ 4+haOpen+Max(H. TMA1:= Tema((H+L)/2.TMA2.2).TMA2. upw:=dtr=0 AND Ref(dtr. haOpen:=(Ref((O+H+L+C)/4.34).1. keep1:=Alert(haC>=haOpen.5 35. 0.0 33.avg). dnw:=utr=0 AND Ref(utr.0 34.
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