How To Use The Smoothed Heikin-Ashi Indicator

If you’re into technical analysis, you’ve likely encountered the Heikin-Ashi indicator — a powerful tool to decipher market direction. But did you know there’s an enhanced version, proven to be almost twice as profitable? In this article, let’s delve into what the Smooth Heikin-Ashi indicator is, how it outshines its predecessor, and how you can leverage its capabilities for more successful trades.

Photo by Tianhao Wang on Unsplash

Understanding Classic Heikin-Ashi

The classic Heikin-Ashi replaces traditional candlestick charts with a smoother version, aiding traders in analyzing overall trends. While it eliminates market noise during trends, it has drawbacks, mainly not displaying real prices. This limitation hinders certain analyses, such as identifying chart patterns or key support and resistance levels.

Enter Smooth Heikin-Ashi: A Game-Changer

Smooth Heikin-Ashi addresses the limitations by working as an overlay, providing traders with the indicators benefits while retaining a clear view of actual price movements. Notably, it excels at filtering out noise during market volatility, offering consistent signals compared to the classic version.

Applying Smooth Heikin-Ashi

To apply Smooth Heikin-Ashi on your chart:

1. Choose your preferred charting platform (e.g., TradingView).
2. Access the indicator section and type “Smooth Heikin-Ashi.”
3. Choose from the available options.

For settings, default (10, 10) works, but for specific strategies:

• Scalping: Consider 5, 5 settings for short-term movements.
• Swing Trading: Opt for 20, 20 settings for a longer-term view.

Analyzing Market with Smooth Heikin-Ashi

Smooth Heikin-Ashi’s green candles indicate an uptrend, while red candles signify a downtrend. However, it’s crucial to understand these aren’t buy/sell signals. To anticipate reversals watch for color changes and analyze candle sizes.

Trading Strategies with Smooth Heiki-Ashi

Improved Entry Signals:

• Identify a strong existing trend.
• Wait for signs of a trend reversal (smaller candles).
• Wait for a price pullback towards the indicator.
• Confirm with price action signals (e.g., rejection candles).
• Set stop loss at nearest swing low and profit target at 2–3 times the stop loss.

Trailing Stop Loss:

• Identify key support and resistance levels.
• Use Smooth Heikin-Ashi to assess trend strength.
• Open a position based on a breakout.
• Let winners run until the indicator changes color.
• Close the position and take profit.

Smooth Heikin-Ashi emerges as a superior tool for traders, offering clearer signals and improved entry strategies. By understanding its nuances and integrating it wisely into your trading approach you can navigate market trends more effectively and potentially enhance your trading success