The Heiken Ashi technique is used in conjunction with candlestick charts in order to help you gather more information about trends more quickly. Using the Heiken Ashi in binary options will allow you to quickly identify trends that you can profit off of instantly.
The Candlestick Basics
In order to understand how to use Heiken Ashi in binary options, you must first understand the basics of a candlestick chart. If you’re not a newbie trader and are already fully aware of the power of candlesticks, skip this section.
A candlestick shows you eight points of data on a given security for each session. Each candlestick represents the time frame you’re currently looking at, so each candle on the daily chart represents one day’s worth of data while the one minute candlesticks give you data for every minute.
The eight data points that a candlestick chart will give you are:
- The top of the shadow (the highest point) represents the highest price of the security for the day
- The bottom of the shadow (the lowest point) represents the lowest price of the security for the day
- The top of the body (the square) represents the opening or closing price of the security – whichever is higher
- The bottom of the body (the square) represents the opening or closing price of the security – whichever is lower
- If the security closed at a higher price than it opened, it will be displayed in red/black/whatever color you choose
- If the security closed at a higher price than it opened, it will be displayed in white/green/any color you choose
- A shorter candlestick shows a smaller price fluctuation throughout the day
- A longer candlestick shows a greater price fluctuation throughout the day
Using these eight points of data, an experienced binary options trader can extract a lot of information that can be used to quickly identify and predict trends. And as we know, being able to predict short term trends accurately is the key to profiting with binary options.
Using the Heiken Ashi Technique
Heiken Ashi charting technique takes the candlestick charting method and makes it more visual and smoother. It converts the normal data points that we discussed above and turns them into identifiers that you can use to know when to buy or sell before the trend is more obvious and appears in a normal candlestick chart.
The differences fall within the body (the open and close) of the candlestick.
Instead of the body showing the opening and closing prices of the security, it shows:
- The average price for each candle under that time period
- The midpoint price from the previous candle
This quick change from candlesticks to Heiken Ashi will give you better information on the trends that are developing because it incorporates past information as it affects new prices. And since speed and timing is practically everything in binary options trading, you should definitely incorporate the Heiken Ashi candles into your binary options trading strategy.
There are three scenarios that occur with Heiken Ashi candles, and here’s how you play off those signals:
- A succession of bullish candle bodies without lower shadows indicates a heavy uptrend = Buy
- A succession of bearish candles without a higher shadow indicates a heavy downtrend = Short
- A small body with long or short shadows on each end indicates a change in direction may soon occur
Using the information you can gather from using a Heiken Ashi chart in binary options, you are able to identify micro trends as well as the changing of trends. This will allow you to take your profits to a whole new level.
Heiken Ashi Tips for Binary Options Trading
The Heiken Ashi is just as effective at determining changes in trend direction on the Daily time frames as it is on 1 minute charts. Here are a few tips on using the Heiken Ashi specifically for trading binary options.
Hidden Inside Bars
Inside bar candlestick formations are very common on Heiken Ashi charts. Go to any time frame with a Heiken Ashi chart and you’re bound to see several inside bars. Now do this and then switch back to regular candlestick charts.
What do you see? Probably not an inside bar. Because of the formula the Heiken Ashi uses to calculate its candles, it can reveal things regular candlesticks can not.
For those who don’t know what an inside bar setup is, it’s basically a full bodied candle followed up by a smaller candle of the opposite (or same) color that opens and closes within the central body of the first candle. Price tends to move in the opposite direction of the first candle. The inside bar with confirmation looks something like this on regular candlesticks.
Inside bars in candlestick charting means a reversal or continuation in price is likely to occur soon. The same applies to the Heiken Ashi candles. Inside bars will appear frequently at the swing low and swing highs on any time frame.
Here’s an example of the Heiken Ashi inside bars on a 1 minute time frame on the EUR/USD.
As you can see there are 6 inside bar setups happening on the 1 minute chart in the span of only two hours! And now lets look at this same chart but using regular candlesticks.
Now how many inside bar setups do you see? If you guessed 0, you’re correct.
There were six inside bars on the Heiken Ashi example, but none using candlesticks. The candlestick formations are sporadic and mixed, which makes it more difficult to determine where price may go. The Heiken Ashi candles, on the other hand, are more uniform and fluid. You have a better idea of what to expect. It’s easier to let instinct take over with the Heiken Ashi candles than with regular candlesticks, making Heiken Ashi a more reliable way to look for binary options setups.
I don’t have the mathematics background or the trading experience to explain why this happens, I just know that it does, and that it works. It works so well that the Heiken Ashi to inside bar setup is one of my most reliable binary options trading tactics.
Watch Wicks Carefully
Let’s use the same chart examples from above. Notice how the Heiken Ashi wicks on the second candles of each inside bar setup is significantly lower/higher than the lows/highs of the first candle wicks.
But if you do the same thing to the candlestick chart, the second candle wicks aren’t always beneath the first candle wicks, in fact, just like with the inside bars, the wicks are sporadic, mixed, and so it’s hard to determine what the wicks are saying, or if they’re even saying anything at all.
When trading Heiken Ashi candles you must pay attention to the candle wicks. Just like we mentioned above, they can tell you if price is currently trending, and just as importantly, when a trend is starting to lose steam and may soon reverse. You have to be able to read the wicks of the Heiken Ashi if you want to successfully apply it to binary options trading.
The Heiken Ashi candles should be an integral part of your binary options trading strategy. They convey a lot of things that regular candlesticks can’t. Determining those specific moments where price will reverse is the Heiken Ashi’s specialty, and since trading binary options successfully relies on strategic timing, you can put the odds in your favor significantly by applying the Heiken Ashi to your binary options trading.
What do you think? Have you had success applying the Heiken Ashi to your binary options chart setups? If so, let us know in the comments!