Hello this is Mark from Tradinformed.com
And welcome to this video on a simple, profitable Heikin-Ashi trading strategy
And before I look at the trading strategy, I’m going to look at a chart showing Heikin-Ashi
candles. And I’ve used the S&P 500 and I’m looking at quite a large timeframe. I’m looking
at the monthly timeframe. Now at first glance if you look at these you might just assume
that they are normal candles. In fact they are actually quite similar but they use a
calculated version for the open and close and this can affect the high and the low.
Although they look very similar and are quite similar you can see one of the key differences
is that when we have a nice uptrend here we have very little wick or shadow below the
candles and that persists here in the nice uptrend we’ve got here. When we have a strong
downtrend we see the opposite affect, we see very little wick or shadow above the candles.
The reason for this is because the Heikin-Ashi candles are designed to be slightly lagging
compared to normal candlesticks. But the affect of this is that they can pick up and hold
onto a trend in a very clear way. If you look back at this chart and they encourage us as
traders and investors to stick with the key trends on the timeframe that you are trading.
So this is really the key advantage of using the Heikin-Ashi candles that you can keep
with the trend, follow this trend and take as much profit as possible from each position.
The strategy that I am going to look at today, I’m not using a monthly timeframe. In fact
I’ve gone right back down to a relatively small timeframe. I would see Heikin-Ashi would
work better on the longer timeframes, it’s probably not going to work very well on a
15 minute chart. But, once we are getting into the slightly longer timeframes, we can
take advantage of the tendency, historically, of many markets to find a trend and follow
it for a period of time. The components for this strategy, it is a
simple system.I’m just going to use the Heikin-Ashi candles, I’m going to use a filter that is
just 2 moving averages, or the MACD. And I’m going to use the ATR, which is not part of
the stragey per se, but I’m going to use it for the stop-loss and profit target. The strategy
it self could not be more simple.We trade long when the Heikin-Ashi turns positive and
we trade short when it turns negative. We close our positions when the opposite occurs.
I’m going to show you this in the spreadsheet form. The spreadsheet I’m using here is a
long-short backtest model that you can use to test any strategy that you can program
into Excel. And Excel is a very simple way for most people to program and test different
trading strategies. A version of this spreadsheet is available,
there is a link on the screen to my website, and click on the link if you would like more
information about this. I should also say that the Heikin-Ashi is
one of the indicators that will be featuring in my new eBook that will be available in
the Amazon kindle store and there will be a link once this eBook is available. The new
eBook for those of you who have looked at my previous eBooks, the new one is looking
at slightly more unusual trading and technical indicators, of which Heikin-Ashi is a good
one. OK, so the spreadsheet is really pretty simple,
I put in the MACD here. We are just using 2 exponential moving averages. I’ve got the
ATR here, next to it. And I’ve got the open, high, low, close data for the Heikin-Ashi
candles. Here I’ve got the results page and you can
see that over a period of time, this is quite a long period of time, this is from 2000,
and going all the way through to 2014. Towards the end of 2014 where we are now.
And you can see on the left here the inputs, that I’ve used for the strategy. And on the
right a table of results and a chart showing the Capital as it changes over time. A couple
of things that I would like to point out here. Firstly I am using a profit target and I am
using a stop-loss but they are both pretty long. In fact the stop-loss of 10 times the
ATR, I don’t think it will be taken out at all because the Heikin-Ashi would change direction
long before that and enter a trade in the opposite direction. Whereas there is times
when our profit target is hit, this can obviously be adjusted to look for even bigger trades
or shorter trades as appropriate. One of the changes that we can do and I can do it now,
I can enter a new version of the trailing stop. I don’t have to use this, I tend to
use it for trend following strategies because it locks in more of a profit and makes it
generally easier to trade by avoiding losing too much of a profitable position. You can
see there that adding a trailing stop multiplier, adding in a trailing stop can tend to increase
the amount of profit. The other thing I would like to say is that I’m using a time start.
This is obviously optional but when you are using timeframes lower than the daily timeframe
there are certain periods, especially trading the forex market. Which is 24 hours a day
during the week. There are certain periods that are more likely to involve breakouts
and a strong change in direction and momentum. So I’m keeping it to the 2 key time periods,
the 2 4-hour time periods are basically the European open and the US open, so this is
during the day of the European markets. I’ve also put in a summer break, so a lot of traders,
investors, and people involved in the financial markets, tend to ease of in July and many
of them will completely take off or wind down their positions and trading size during August.
So we can take these months out and that’s what I have done here. Using my summer break
of July and August, obviously this doesn’t hold true for all markets, you can change
this to suit the particular market that you are interested in.
Looking at the results we’ve got a pretty good win percentage over time. We’ve got a
nice difference between the largest winning trade and the largest losing trade. And one
thing I like in particular is that we’ve got a very low drawdown over this extended period
over time, 14 years. Only having a 10% drawdown is pretty nice.
OK, so there you have it, a simple Heikin-Ashi trading system. There is not really a lot
that has gone into this, it can be refined it can be improved but as it is, it is a nice
simple strategy to begin with. As I mentioned earlier in the video, the spreadsheet
that I have used is available, there is a link on the screen. Also this indicator will
feature in my forthcoming eBook about slightly more unusual and not so common technical indicators.
For more information about trading the financial markets using Excel to backtest and the financial
markets in general, please go to www.tradinformed.com