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Heiken Ashi Binary Options Strategy
The Heiken Ashi binary options strategy involves the use of the Heiken Ashi candlestick indicator, as well as, the MACD indicator.
In this case, we shall be deploying a custom-made MACD indicator, which has been color-coded to recognize trend changes much earlier than the conventional MACD indicator which comes with the forex charts.
Indicators required for this strategy
The indicators to be used for this strategy are:
- The Heiken Ashi indicator: This is a custom-made indicator which plots Heiken-Ashi candlesticks on the asset charts.
- The MACD color-coded histogram: This is another custom-made indicator which paints the MACD histogram component of this indicator blue or red according to trend bias.
- 21-day EMA: Acting as support or resistance for the price action depending on where price action is going.
- 7-day EMA: While this indicator is not a very integral part of this strategy, the 7-day EMA can be used as an additional indicator to the chart to detect trend when this is not ascertainable on the charts at first glance. (Learn more about Moving Averages and how to use them)
The Heiken Ashi indicator will plot candlesticks using the following data:
- open and closing price data from the previous time period
- open price, high price, low price and closing price data from the current time period
The Heiken Ashi candlesticks are therefore different from the conventional candlesticks and on a chart, these will be seen plotted as additional candles on top of the Japanese candles. For this demonstration, we have adjusted the colours of the Heiken Ashi candles to blue and red respectively; blue candles representing up candles and red candles representing down candles.
The Heiken Ashi candlesticks indicate when the trader should trade Call or Put based on color changes. So when the Heiken Ashi candles turn red in colour, it is a signal to prepare for a PUT entry, and when they turn blue, it is a signal to prepare for a CALL entry. These colors can be customized by the trader for visual clarity.
The 21-day exponential moving average (EMA) is the resistance-support line for this trade, while the MACD histogram also determines the trade direction by means of a color change. Red is a signal to PUT, and blue is the signal to CALL. A typical trade performed with this strategy must therefore take all these parameters into consideration and put them together so that signals are clean, clear and unambiguous.
The Call trade setup occurs when the following conditions occur at the same time:
- The Heiken Ashi indicator candles are blue.
- The price bounces off the 21 EMA
- The MACD histogram bars are blue in colour.
These conditions are displayed in the chart that we have shown below:
This is a one hour chart that displays the fact that there are several opportunities to trade this setup over a one-week period. We can see that on this chart, 4 areas to set a Call trade (marked 1, 2, 3 and 4) were seen over a 9-day period. When the market is trending, the opportunity to profit from this trade is enhanced.
As in similar trade setups we have described, it is necessary to determine the correct exit point for the trade so that the expiry time will leave the trade in the money. While left to the trader’s discretion, it is suggested that the trader can leave an expiry time of about 4 hours, or 4 candles in length for a trade taken from a one-hour chart.
The trader should short the currency pair when the three indicators show the following characteristics. Again, these should all be seen at the same time:
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- The Heiken Ashi indicator candle bars assumes a red colour.
- The price action has come from above and broken the 21 EMA to the downside, or is coming from below in a pullback fashion and is rejected at the 21 EMA.
- The MACD histogram bars are already red in colour.
The chart below shows the possible entry points for a long trade based on the conditions that we have stipulated above on a daily chart.
The snapshot displays the setup that occurs that makes a PUT trade possible. The lines indicate where price action marked by red Heiken Ashi lines bounce off the 21EMA line and provide the trade signals. Once again, it is pertinent to set the expiry time using the timeframe chart as the guide. This chart was pulled from a one hour chart, and therefore it would be ok to use at least 4 candles as the length of time which should be allowed to pass before the trade expires.
Tips for better trades
A closer examination of the charts will show that there are times when the Kumo will be horizontal in orientation, showing that the price action is going to be in consolidation or will be in a range-bound mode. This strategy works best when the Kumo is in a trend, showing that the asset will be in a trending mode. A trending market will not be in the best interest of the trader as the asst has to make a move in some direction to actually give the chosen trade a chance at success. So how can the trader confirm that the market will trend?
One way of performing a confirmation to see if the price action is actually going to trend is to introduce another indicator. One such indicator which is used to detect a trend is the 5-day exponential moving average (5 EMA). When the 5 EMA crosses over the 21 EMA in one direction, it is most likely that this will be the direction of the trend. Where the 5 EMA fails to produce a definitive cross with the 21 EMA, the market will in all probability end up being range-bound and the strategy will not deliver. So perhaps the trader will need to add the 5EMA to the chart to check for the trend before executing any kind of strategy.
One of the best indicators based on MAs is trend indicator for MetaTrader 4 that not only produces non-repainting crossover trading signals, but also filters them through ADX, which measures the strength of a trend.
Please remember to test all your strategies on a demo account first.
Heiken Ashi: one indicator strategy for binary options
Candlestick analysis, despite its long history, continues to be one of the most profitable methods of how to make money on binary options on any financial asset from currency pairs to stocks and futures. Like any technique, it has, in addition to advantages and disadvantages, which means opportunities for improvement. One of the most successful modifications is Heiken Ashi candles.
Any in the range M1-M15. In our case, M1 is used, but with an increasing period of analysis, the accuracy of the signal an increasing.
Any currency pair. The main requirement is a fixed (2-3 points) spread and no hidden fees.
All Forex trading sessions.
Percentage premium option:
Not less than 70-75%.
How «new» candles work
The main problem with all market analysis options is filtering random and small price movements that make it difficult to trade on a trend. To remove market “noise”, smoothing or averaging of historical data is used, which gives a clearer and clearer picture. The Heiken Ashi algorithm works similarly – we can say that we are dealing with a «candle moving average”.
It is present in the basic set of all binary trading platforms . Despite the external similarity with “classic” candlesticks, there are significant differences in the charts. Let’s look at the same period in more detail:
As you can see, the price levels of candles are different, although their shape as a whole coincides. We will not describe the calculation algorithm in detail; it can be found on the Internet. For profitable trading, only one feature of the indicator is enough: If only one price is used to build an ordinary candlestick (Open / Close / High / Low), then Heiken Ashi uses them for additional calculations.
The result will be additional smoothing, which means that the delay increases. At the same time, this makes it possible to use binary option trading signals on assets with high volatility, such as the GBB/JPY or EUR/JPY cross pairs-with the help of “synthetic” Ashi candles, you can filter out most of the false breakouts and entry points.
Finishing the theory and moving on to real binary options signals .
We will use the simplest and most visual live trading signals – a change in the color of the chart when the trend is reversed. To open the option, you need to meet two conditions:
- There must be at least three candles of the same color and direction before entering the market;
- If the candle bodies are rising, this indicates a trend development. Accordingly, when the trend ends, they decrease, and the shadows increase;
Another condition is patience. You can try to enter the first candle of a different color, but it is better to wait for the full binary signals . The expiration time of the options should be at least 5-7 minutes, even if a minute is selected as the working timeframe, as in our video.
Recommendations about use …
- During the publication of important fundamental news and statistics, we do not open options 30 minutes before the news and 30 minutes after the publication; cautious traders can close current deals. To control the events, we use the economic calendar included in the all popularbinary trading site!
- You can use Heiken Ashi on any currency pair, it’s better to stay on the main ones (euro, dollar, yen), not captivating with exotic ones (Mexican peso, Indian rupee and others). Although these pairs show strong trends where you can make money, you should not be fooled by the schedule and “long candles”. In reality, we have low liquidity and a strong dependence on fundamental factors. In such conditions, most strategies andtop binary options signalsdo not work!
- Working out graphical patterns poses a problem for traders: open a trade on it, for example, at the next bar after the breakout of the resistance line of the “triangle”. Or wait until three Heiken Ashi candles are the same color?
In this case, it is better to enter the market by a pattern signal. Graphic analysis more comprehensively sees the market situation, more precisely responds to its change. You can lose a lot of profit by waiting for the candle to change color.
- Experienced traders on higher timeframes can open trades using only the indicator to monitor the “market pulse”, but this approach is more suitable for the stock market, where the trends are calmer. But in a dynamic Forex market, there is always a risk of a rapid reversal of even a long-term trend, so take into account the data of other technical tools and live trading signals ;
- The indicator shows the end of local correction or rollback well. The closer the resumption of the trend, the greater the shadow of the candles, even if the body remains at the same level. It is recommended to close the current profit/loss when changing the color of the chart;
- It is necessary to take into account not only the volatility of the trading instrument as a whole but also the average values for Forex trading sessions. For example, pairs with the Euro are the most dynamic in the European session, which means that the chart is the most informative. On the Asian side, volumes fall sharply and auto binary signals stop working.
Let`s summarize. Heiken Ashi is one of the best trend indicators and the delay is not a significant drawback. Opening with a delay of 1-2 candles allows you to enter a really strong signal and close exactly at the end of the trend.
They do not react to random market fluctuations, they perfectly show medium-and long-term movements, but it is better to open positions only after additional confirmation of binary signals , not during the flat period.
Indicator Heiken Ashi for trading binary options
Despite the advantages and technically adapted algorithm for the operation of binary options that traders receive for trading in this instrument, the main problem remains – to obtain a stable result, every potential investor must learn to correctly identify the most profitable market points for contracting. For these purposes, a potential investor will need a fairly broad technical toolkit. And this is logical, because the market, despite the cyclical nature of the charting of quotes, can not build clearly repeated patterns and models. For this reason, the more arsenal of analysis tools a trader has, the higher the probability of correct market forecasting. Another point connected directly with options trading is that the principle of the rate for market movements is embedded in the algorithm of the work of the instrument, that is, the clear definition of the direction of the trend of quotations is the main issue here. Therefore, the most efficient services when generating forecasts for binary trading are trend instruments. Given such requirements for work in the binary market, we offer you as a service for effective market analysis a description of the work of a professional and highly productive indicator Heikin Ashi. This market analysis tool today refers to the classic forecasting services and allows you to achieve the highest possible trading results in the binary market.
What is the indicator?
So, Heikin Ashi was introduced to traders in 2004 in one of the most popular financial publications. The tool was created as a means of determining the trend based on smoothing the indicators of candlesticks.
The problem of analyzing trading quotes is that at the outbreak of market volatility, many instrumental strategies fail – simply indicators can not respond quickly and accurately to impulse declines or the growth of quotations. In addition, most traders consider such market situations difficult for analysis, and even more so for registration of trade rates. Therefore, the specialists decided to create a service, in the algorithm of which a delayed reaction to instantaneous outbursts of volatility will be laid. This smoothes out the technical indicators of the instrument and allows you to more accurately determine the trends in the movement of quotations.
Heiken Ashi is nothing more than a filter for low-frequency market fluctuations. This principle of construction reduces the level of influence of market noise in any time horizon of quotes assessment.
The indicator for building its indicators uses the candles already formed on the chart, so users get a clear picture of possible market fluctuations in the value of the asset. It is the belated reaction of the instrument to the bursts of market impulses that makes the indicator an indispensable service in binary trading.
In addition to the general advantages of Heikin, Ashi provides an excellent opportunity for traders who prefer to use cross-rates of high-volatility currencies in trading. His technical algorithm of work allows you to determine the most profitable trading levels for contracts when working on such assets as precisely as possible.
What does the indicator look like?
At first glance, the service almost does not differ from the classical Japanese candles. But here an innovative method of calculating the schedule is used, which more accurately determines the current trend of the market. For clarity, we describe the formulas:
вЂў The level of candle opening in this case is calculated as the arithmetic mean between the opening and closing of previous Japanese candles chart
вЂў The level of candlestick closing indicator is calculated as the arithmetic mean between the closing / opening price and the level of extremes of the previous Japanese candle
вЂў The level of the candle’s maximum is defined as the arithmetic mean between the minimum asset value and the opening / closing level of the previous candles
вЂў The minimum level of a candlestick indicator is defined as the arithmetic mean between the maximum asset value and the level of opening / closing of previous candles
As a result, on the trading schedule of the underlying asset, a specific liquidity management regime is formed, which allows, based on the candlestick indicators, to generate forecasts for trading:
Pay attention to how well the liquidity chart, constructed by the indicator of Heikin Ashi, looks harmoniously. Here it is possible to trace all the cyclical patterns of the trend turns, which greatly simplifies the work of the trader in the issue of generation of forecasts.
Access to Analysis Service
Heikin Ashi is considered a classic professional indicator for market valuation. However, in binary trading we use specialized terminals for trading, which often have relatively limited equipment in terms of access to analysis tools. Therefore, it is rarely possible to find a trading service, where the basic set of analysis services will include this tool. But the problem is solved very simply. First, today in the market of brokerage services there are companies that provide the Meta Trader platform as a trading service, for example, the operator Alpari. Heiken Ashi is a standard analysis service on this platform. Secondly, – on some trading platforms, brokers offer specialized functionality for installing third-party indicators, which allows adding a technical analysis tool to the list of necessary tools for forecasting. Heikin Ashi can be downloaded online for free. And, thirdly, if your trading platform does not provide the opportunities described above, you can use any third-party technical resource where you offer live asset schedules and a wide range of indicator means. As an example of such a professional resource, you can offer a site tradingview.com.
An important point is that the candles of the indicator on the asset chart are installed over the Japanese candles, so when installing the technical tool, pay attention to setting the color gamut of the service. This is necessary for the comfort of using analysis tools.
So, we came to the main indicator of the indicator’s performance – signals. In this respect, the analysis service has a very wide range of indicators that allow a clear definition of the market trend of quotes movement, and opens the possibility for the execution of a performance contract with a binary option. When the indicator is operating, it is customary to distinguish such formats of technical signals for trading:
вЂў On the chart, the green indicator candles without shadows are formed. This indicates a clear trend trend up, where there is a strong market momentum. In this situation, you can draw up a series of trading rates on the growth of quotations of the asset.
вЂў The color of the candle is green, but a slight shadow is formed – this indicates a certain reduction in the market momentum when building an uptrend, but these indicators allow you to continue trading in the general direction of the market.
вЂў The indicator candles have a red color and form a large body without shadows. This is an indicator of a clear downward trend in which you can use the DOWN rate packages.
вЂў The color of the candle is red, but a slight shadow appears – this indicates a certain decrease in the market momentum in the construction of a downtrend, but these indicators allow you to continue trading in the general direction of the market.
Candles of the indicator, regardless of color, form small bodies and long shadows (as an example of this mode of constructing the indicators of the instrument, use the classic Japanese candles Dodzi). Such candles Heiken Ashi signal about the maximum decrease in the market momentum on the threshold of the trend reversal. A model of this format can be used as a signal for the emergence of a new market trend.
Considering the practical application of the indicator in binary trading, it is worthwhile to say that auxiliary tools can be used to increase the effectiveness and accuracy of service signals. In this case, oscillators are extremely effective. You can recommend standard services: MACD, RSI, AO, Stochastics. Using auxiliary resources, you will be able to more accurately monitor the market’s reversal impulses and achieve the most effective use of the indicator Heiken Ashi. In addition, the oscillators will filter out the false signals of the main resource at times of short-term increase in market volatility that occur when fundamental market drivers appear.
Disadvantages of the indicator
Of course, like any other technical service for forecasting and market valuation, the Heikin Ashi indicator has a number of drawbacks. Yes, it is a pity that the Grail has not yet been developed, which is capable of accurately determining the most favorable conditions for trading operations by binary options. Although, frankly speaking, the appearance of such a tool will make trading an ordinary and uninteresting occupation, and the financial market will simply collapse! So, let’s return to the shortcomings of the indicator:
вЂў The main negative aspect of the service is its delay in building. Yes, its main advantage under certain conditions is a disadvantage. The problem is that the algorithm for calculating the technical service candles is based on the evaluation of the already generated candles of the chart, so in the medium term the instrument signals have an extremely low value. But given the fact that binary traders rarely use long-term valuation periods and contracts with prolonged expiration, this shortcoming is not capable of having a critical effect on the overall trading result. In terms of recommendations – use timeframes below H1 to evaluate – thus the indicator signals will not lose their relevance and bring profit.
вЂў The Heikin Ashi indicator has low efficiency as a mono indicator strategy. Despite the accuracy of service indicators and the ability to work on its signals with packages of contracts, the service generates low-frequency signals, which do not allow obtaining high dynamics of trade operations. Therefore, the optimal application of the indicator is a combination with other technical forecasting tools
вЂў The latter lack of service is more likely due to the low level of experience of traders. The fact is that it is quite difficult for newcomers to understand the candle models that form the service as signals. Therefore, for novice investors, first of all, it is necessary to study the classic patterns of the chart in the format of Japanese candles – this will allow to identify the indicator signals at an effective level.
вЂў In general, despite the shortcomings and certain technical problems of the indicator, it is an amazingly effective resource for binary trading.
In conclusion, I would like to note that we provided you with an additional resource for trading, which allows us to evaluate trading quotations very efficiently and professionally, and build based on this, efficient projections for options. But before using the tool, test its work in real market conditions. Based on this, you can more clearly understand the principle of its operation, study the technical signals of the service, and also determine the optimal conditions for its application. Thus, you can maximize your financial indicators of trading and count on success.
вЂњGeneral Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.вЂќ
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