The Heikin Ashi indicator is the “Easy Button” of Forex trading. If you’re smart, this should be a red flag.
It would be great if we could use it and win with it. Can we still do that?
What It Do?
The Heikin Ashi indicator is old. Very old.
I often crap on indicators older than spot Forex itself (1996), and for good reason. This is a bit different however.
Heikin Ashi has two colors. On MT4, which Heikin Ashi is included, those colors are red and white.
White for long, red for short. The math behind it is unimportant, and not essential to you winning, so don’t worry about it.
Let’s take a look at why it’s different than most indicators before we start figuring out how to use it to our advantage.
Great For Beginners
Beginning Forex traders need all the help they can get.
They have a horrible combination of no money management, high emotions, and terrible information.
It’s bankruptcy waiting to happen.
Anything, and I mean ANYTHING that can take the human element out of their trading is a good thing.
Indicators like Heikin Ashi can really help here.
Why? Because it’s binary. Either it’s long or short. There’s nothing to read. There are no settings to tweak.
This can be great, because new trading need to be focusing 99% on money management and keeping things consistent.
But new traders never do this.
They spend all of their time finding the best trade entries they can, which in the end helps them zero.
Having something like Heikin Ashi or Renko is great because it can shift the focus to what really matters, at least early on.
Bad For Beginners
Heiken Ashi is not great for trade entries. Overall, it performs pretty poorly actually.
Using it exclusively for trade entries and exits results in bad entries AND bad exits.
The blind nature of the Heikin Ashi indicator will often give you a trade entry in a very unfavorable spot.
Practitioners of price action and algorithmic trading will all know this particular entry is a no-go. Heikin Ashi, by nature, can’t see these things.
Great trade entries, regardless of how we try to attain them, are based on where price is relative to where it was before. We wrack our brains trying to find the best methods to obtain the most surgically precise points to optimally place our money.
Heiken Ashi doesn’t do that. And it’s obvious. And it hurts your bank account in the end.
Take any chart. Place the Heikin Ashi indicator on it. Find the places where it obviously lost you money.
At those particular spots, take the indicator off and see where it would have actually gotten you into a trade and then out of the trade.
It can be scary bad sometimes.
Do not use Heikin Ashi for trade entries.
The crazy part about all of this is even after what I just said, almost every site dedicated to using this indicator was created to show you how great entering trades with Heikin Ashi is.
The 99% is the 99% for a reason, folks.
There’s A Better Way
If you’ve learned anything from this website, there’s always a better way of doing things.
But you need to pay close attention so you know just how to go about doing it.
Heikin Ashi is bad for trade entries, but can, and I’ll say it again, CAN be good for money management, at least early on in your trading career.
You will find better ways to manage winning trades as you progress. But for now, you can do some damage with this thing if you do it right.
How and more importantly WHEN you use this indicator is the key.
Scale Out First
We glossed over in the Ratios video how to scale out of a winning trade.
As far as WHEN to use the Hiekin Ashi indicator, use it to manage a winning trade after you’ve already scaled out half of your trade, and moved your stop loss to break-even.
This is the key.
And nobody else will tell you to do it this way.
They will tell you to use it for entries, which is an obvious fail.
Then Do This
Anyway, once you’ve scaled out, the Heikin Ashi indicator’s color will certainly be in your favor — white for long, red for short.
All you need to do at this point is follow it until the color changes, then exit out when it does.
Having a trailing stop loss is a good idea here as well, but if you are struggling with finding a good exit indicator, this is a worthy substitute until the time comes where you find one you can depend on.
This, traders, is the only viable use for the Heiken Ashi indicator. And even then, you should replace it at some point.
Readers of this blog should expect this by now — you won’t get to where you want to be by conventional means in this game.
It’s set up to punish those who think and act this way.
You have to go outside the lines, and when conventional means gives you something to use, you either dismiss it, or try somehow to find a portion of it to extract some value out of it.
Just be thankful we are able to find SOME use for a popular indicator.
It’s certainly better than most.