Tired of missing winning trades? Are you stuck staring at charts, confused by endless indicators, and STILL losing money? What if there was a simple strategy used by traders to CRUSH the market?
Introducing the HEIKIN ASHI with DROP BASE DROP, RALLY BASE RALLY Technique!
This isn’t some boring lecture. We’re gonna break it down with VISUAL CHARTS that will have you saying “OMG, that’s SO EASY!”.
Heikin Ashi candles Vs Japanese candlesticks
This strategy combines Heikin Ashi candlesticks with price action patterns to identify potential entry and exit points for short (Drop Base Drop) and long (Rally Base Rally) trades.
Heikin Ashi candles and regular Japanese candlesticks, along with why some traders prefer Heikin Ashi:
Similarities
- Both chart price movements over time.
- Both use open, high, low, and close prices.
Differences
- Calculation:
- Regular candlesticks use the current period’s open, high, low, and close for each bar.
- Heikin Ashi candles modify these values by averaging prices from the current and previous periods, creating a smoother look.
- Appearance:
- Regular candlesticks can be more erratic, reflecting every little price swing within the timeframe.
- Heikin Ashi candles tend to have a smoother look, potentially reducing visual noise on the chart.
- Heikin Ashi candles are also more likely to be consistently colored during trends (red for downtrends, green for uptrends).
Why some traders prefer Heikin Ashi:
- Reduced Noise: The smoothing effect of Heikin Ashi can help traders focus on the underlying trend by potentially filtering out minor price fluctuations.
- Trend Clarity: The consistent coloring during trends can make it easier to identify potential trend continuations, especially for newer traders.
Here are some things to consider:
- Heikin Ashi hides some information: Because Heikin Ashi averages prices, it can obscure some of the details of each price movement.
- Confirmation is key: While Heikin Ashi can provide clues, it’s still wise to use other indicators or chart patterns to confirm potential signals.
- Not a magic bullet: No single indicator guarantees success. Heikin Ashi should be used in conjunction with other trading strategies and risk management techniques.
Ultimately, the choice between Heikin Ashi and regular candlesticks depends on your trading style and preferences. Experiment with both to see which one helps you make better trading decisions.
Indicators
- Heikin Ashi Candlesticks: These candles provide smoother price action by incorporating opening, closing, high, and low prices from both the current and previous period.
- Drop Base Drop (DBD): A bearish reversal pattern consisting of a significant price drop, followed by a brief consolidation period (the base), and then another downward price move.
- Rally Base Rally (RBR): A bullish continuation pattern characterized by a price increase, a consolidation period, and then another upward price move.
Entry for Short Trade (DBD)
- Identify a downtrend on the Heikin Ashi chart.
- Look for a bearish Heikin Ashi candlestick with a large red body (indicating strong selling pressure) followed by a smaller bodied Doji or slightly bullish candle (representing the base).
- The ideal entry point would be a close below the low of the base candle.
Stop Loss
- Place a stop-loss order above the high of the base candle (for DBD trades).
Exit:
- Target profit based on a risk-reward ratio you’re comfortable with (e.g., 2:1 risk to reward).
- Alternatively, you can exit the trade when the Heikin Ashi candles start closing with small bodies or Dojis, indicating a potential loss of momentum.
Entry for Long Trade (RBR)
- Identify an uptrend on the Heikin Ashi chart.
- Look for a bullish Heikin Ashi candlestick with a large green body (indicating strong buying pressure) followed by a smaller bodied Doji or slightly bearish candle (representing the base).
- The ideal entry point would be a close above the high of the base candle.
Stop Loss:
- Place a stop-loss order below the low of the base candle (for RBR trades).
Exit:
- Target profit based on a risk-reward ratio you’re comfortable with (e.g., 2:1 risk to reward).
- Alternatively, you can exit the trade when the Heikin Ashi candles start closing with small bodies or Dojis, indicating a potential loss of momentum.
Additional Considerations
- This strategy works best in trending markets. Be cautious during consolidation periods.
- Use other technical indicators like volume or moving averages to confirm the strength of the trend and potential reversal signals.
- Always practice proper risk management techniques, such as using position sizing and stop-loss orders.
- Backtest this strategy on historical data to assess its effectiveness before risking real capital.