In stock trading, investors need to observe price trends when buying or selling their assets. As a result, profits (capital gains) can be optimized through the right entry and exit moments.
Entry and exit moments can be determined by analyzing historical stock price movement patterns using certain types of charts or technical indicators. One of the charts that can make it easier for investors to detect uptrend and downtrend signals is the Heikin-Ashi chart.
Heikin-Ashi: The Upgraded Candlestick
A regular candlestick has an open, high, low, and close component that is seen only from the price movement during one trading day. However, Heikin-Ashi applies an average formula between two periods on its bar chart.
Remarks:
0 indicates the value of the component in the current period
-1 indicates the value of the component in the previous period
Advantages of Heikin-Ashi
Because it uses an averaging formula, Heikin-Ashi reduces the element of market noise (short-term erratic price changes) in chart patterns. This creates a smoother pattern that can help investors when identifying and analyzing trends.
Uptrend and Downtrend Signals
A green (bullish) candle with a small lower wick indicates buying pressure and a potential uptrend. The indication gets stronger if the candle has no lower wick at all. Investors can buy asset at this position.
On the other hand, a red (bearish) candle with a small upper wick signals selling pressure and a potential downtrend. The indication gets stronger if the candle has no upper wick at all. Investors can sell assets in this position.
Meanwhile, a green or red candle with a short body and upper and lower wicks indicates trend changes. Investors can wait for the next signal or look at the overall sentiment before deciding to buy or sell.
Pro-Tip: Include Technical Indicators
The weakness of the Heikin-Ashi chart is that it does not reflect real-time price movements, aka the last price. Therefore, investors should also use technical indicators such as Moving Average, Relative Strength Index, or SuperTrend when analyzing to avoid false signals.
Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).
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