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What is Heiken Ashi Technique?

Stock or investment trading is potentially a very lucrative activity. There’s little wonder that more people are drawn to the idea each day. Newcomers can range in motivation from simple curiosity to aspirations of becoming a self-sufficient trader. Particularly when investing in stocks with low leverage and a quick pace in market changes, profits can come rapidly. This is, of course, a double edged sword since there is equal opportunity for rapid losses and even entire budget depletion. One should be researched on different kinds of trading techniques and market strategies before attempting any serious moves on the market.

Technical analysis

Technical trading is one of the most common schools of trading philosophies, and there are a few different ways to go about it. One of the most popular right now is day trading, as it has a daily win rate. This can make it attractive to newcomers, but extreme caution is advised. While day trading can be lucrative for those who really know what they’re doing, it generally requires an experienced eye to be successful and is not recommendable for those in the early stages of trading.

Momentum trading is another popular technique that involves chasing stock that is moving quickly in either direction. The window for this type of trading is typically a few hours to a few days, and it relies on quick changes in the market. Obviously, the goal should be to buy stocks when the value is low and sell them when the market shifts high.

Position trading is another technique common amongst technical traders, but it is a more long term game. This type of trading involves buying stocks and typically holding on to them for a matter of weeks to gauge market trends and choose the optimal time to sell. This is arguably one of the safest forms of trading since you’re able to wait out results instead of taking rapid risks.

In general, technical trading relies on close evaluation of investments and analyzing statistical shifts in the market to achieve the best outcome.

Heiken ashi explanation

The heikin ashi technique is among the most popular used in technical trading. Created in the 1700s, this technique is similar to the traditional Japanese candlestick chart, which measures market growth and change for a single day. The main difference with the heiken ashi technique is that the values used to create each of its bars are more complex and obtained from multiple sources. The technique is used to easily identify trends in the market.

“Candles” that the technique refers to are bars on a graph that represent the day-to-day state of the market. Green, also called “open,” candles signify market growth. Red candles, also called “closed,” are used to signify a downtrend. Each bar’s value is calculated using information from the previous bar.

Heiken ashi benefits and limitations

Since the technique smooths price information from more than one period, it makes it easier to spot price patterns and market trends compared to other techniques. Its color coded nature also makes reading it comparatively easy. The technique also reduces the risk of false signals that could lead to poor decisions in choppy markets. This is due to the cumulative collection of data that can weed out false breakthroughs.

The biggest limitation of the heiken ashi technique is simply that it takes longer to form a chart since information is being gathered from multiple periods. This won’t be a problem for swing traders and other long term traders, but it could prove a complication for day traders.

Regardless of what techniques you decide to follow, having an expert on your side is generally a good idea for newcomers. A stockbroker can simply advise you, or they can take control of the buying and selling process and anything in between. They are motivated to make you as much money as possible, and it will be much easier to learn the game with outside help.