As an order flow and price action trader it might surprise you that I hold Heiken Ashi (HA) in high regard; after all, The price action is for these bars determined through an averaging method, not real-time pricing. If you are e-mini trading in a trend though, the Heiken-Ashi bars can provide clarity and insight. On the other hand, trading these bars is not particularly effective in bracketed market. That’s the key really, I like to trade HA in a strong trend and better Renko bars the rest of the time.
The formula for calculating HA bars is relatively simple; so simple that most e-mini trading platforms allow you to choose from a wide variety of price action display schemes, and Heiken Ashi bars are usually included to use. The formula for calculating the bars is relatively simple and you can easily spot the averaging method:
HA-Close = (Open+High+Low+Close)/4
HA-Open = [Open(previous bar) + Close(previous bar)]/2
HA-High = Max(High,HA-Open,HA-Close)
HA-Low = Min(Low,HA-Open,HA-Close)
As you can see, modern computers make calculating bars much easier than attempting to calculate them yourself. When would you have time to trade? HA bars were introduced in 2004 in TASC magazine. You can chart their history back to Japanese trading systems.
The Heiken Ashi Delta is an indicator that seems to trade in real time, though many traders claim it leads e-mini price action by several bars. In any event, this is a study that prints values by comparing the difference of closing and opening prices as displayed in price values. I have found this indicator to be an absolutely wonderful confirmation indicator when considering entering a trade. Oddly enough, the indicator performed quite well in both trending and bracketed markets. To be sure, I happened upon this indicator by mistake and started looking at it and trading a bit with it and found it very effective and informative in all types of trading.
One bit of warning though, make sure you have plenty of practice trading with the system and before applying this system to live trading. Because of the scope of this article, I won’t go into any specific trade setups,, but the Internet is littered with all kinds of setups and trading methodologies that may be employed when trading the system. I leave it to you to investigate the system idiosyncrasies and see if these bars resonate with you.
In summary, Heiken Ashi isn’t for everyone, but with practice and patience you may be able to improve your in-trend trading technique.