tana Th Ful Gude yen Py Tu Sap | 201 acu You have free member-only story left this month. Sign up for Medium and gst an extra one Heiken-Ashi Trading— The Full Guide in Python. Presenting and Back-testing the Heiken-Ashi Candlestick Technique, Soflenkaabar (1 Jan 29-6min eadttpsufwwsightesp.com/en/educaton/tundamentals/how-to-read-a-candestick-cht Candlestick charts are the most common form of graphical analysis. They are an easy way to understand market psychology while having all the quantitative information needed for the market price. In this article, we will introduce the concept of candlesticks and then discuss another variation of candlesticks called Heiken-Ashi. Finally, we can back-test a strategy that uses the Heiken-Ashi chart. Ifyou want to see how to create candlestick trading systems in Python, feel free to have a look at the below article: oxime mioaioheatain fugue Hak ave‘moot aaa Trg The Fld nye oy Sta How To Create Candlestick Trading Systems in Python Candlestick Trading: A Full Quide on Patterns and Strategies rmediumom Japanese Regular Candlesticks Candlesticks are a quick way to understand OHLC data and detect patterns. Itis very straightforward and easy to interpret. A bullish (typically green) candle is when the market closes above its opening price. A bearish (typically red) candle is when the market closes below its opening price. High Pie High Pace hsing Price ‘open Price Moxinedin cmioanoheatai tf gucer-pyor Hak weaan as Treg Th Flue non by Stan kana Te Srp a2 acu pn Price Cosi Pie Let us see a full chart of candlestick to understand more how it is shown. ‘The trend is clearly bullish with some corrections seen around the red. candles. Notice the small candles where the opening price is almost the same as the closing price. This is called a Doji and signifies indecision and shows a possible reversal or consolidation.‘moot ans Tare Th Fle yen oy Sta ett Now, that we have seen what a candlestick chart is, we can proceed with the definition and coding of the Heiken-Ashi chart. Heiken-Ashi Candlesticks The Heiken-Ashi (Also called Heikin-Ashi) candlesticks seek to clean out the picture and show a clearer trend by smoothing out the OHILC data. Here is how to calculate the Heiken-Ashi candlesticks: Open + High + Low + Close Close Price = 4 Open of Previous Bar + Close of Previous Bar Open Price = p 2 oxime mioaioheatain fugue Hak waswanaeet tan Tha la yn iy Sota S25 an ‘And to calculate the high and low price, we take the maximum and minimum prices of the following: High Price = max (Open, High, Close) Low Price = min (Open, High, Close) ‘The above formulas will smooth out the candles to give us a more defined and clear trend. (n ey + ‘Wi A MS EURUSD hourly chart, Regular eanlestckson the ff and Helken-Aehi candlesticks onthe right image by Author) To code a function in Python that adds 4 new columns containing OHLC oxime mioaioheatain fugue Hak wa‘moot aan Ay Tg The lc ner by Sten ka Heiken-Ashi data, we can use the below code block: def heiken ashi (Data, opening, high, low, close, where): 4 Heiken-Ashi open. trys for i in range(ien (Data): Datali, wnere] ~ (Data[i - 1, opening] + pata(i - 1, slose)) / 2 except: ass # Heiken-Ashi Close For i in range(len (Data) } Datali, waere + 3] = (Datali, opening] + Datali, high] + Data(i, low) + Datali, closel) / 4 # Heiken-Achi High for i in cange (Len (Data) ): Datali, waere + 1] = sax (Datali, where], Datali, where + 3], batati, Bighl) # Heiken-Ashi Low for i in range (Len (Data) ) Datali, waere + 2] = min(Datali, where], Datali, where + 31, patati, iew1) # To be used on an OMLC array with a few colums to spare nny ohle_array = heixen_ashi (ny ohle-array, 0, 1, 2, 3, 4) # The numbers signify in order: Open, High, Low, Close, then the coluan indexed at 4 is where the first new Heiken OHIC data will be oxime mioaioheatain fugue Hak a‘moot aaa Trg Th Flue non Oy Stan kana Te Srp a2 acu populated (Meaning that the columns 4, 5, 6, and 7 will have a brand yew OHLC data) i i i ‘wid M fhm At, in 3 pe asl if LUSOCHE hourly chart, Regular candlesticks on the left and Heler-Ashi candlesticks on te right. dmage by Author) flowy Not The two charts are simple a comparison between a regular candlestick chart and a Heiken-Ashi chart, We can see the resemblance but we can also see that the latter is smoother. We should note however that since the Heiken- Ashi method is simply an averaging, the price shown may not be the true market price. kk flac | : Wh tha | onsinedim rolnnoken-atireny iit giceroyterr BOP 8lt ee fp" “+ Mle / arr" ‘wl AUDCAD hourly chart, Regula candlesticks onthe let and Hetkon-Aehl candlesticks on the tght mage by Autho®) Creating the Strategy The basic strategy using the Heiken-Ashi charts to simply buy and sell whenever the color of the candles changes. This should give us the following conditions: + Go long (Buy) whenever the Heiken-Ashi candle changes from red to green. Hold the position until getting a contrarian signal. We have to be careful to initiate the position using the true market price and not the one displayed on the Heiken-Ashi chart. + Go long (Buy) whenever the Heiken-Ashi candle changes from red to green. Hold the position until getting a contrarian signal. We eninetun container abee py OOS wef ih gl Oy “| oan dt fy dt Ay Hf L My ,‘moot aan as Treg Th Flue non ty Stan kana Te Srp an. 224 acum ‘We can code the signal function of the strategy as follows: def signal (Data, heiken close, heiken_open, buy, sell): for i in range (len (Data) ): £ Datali, heiken_close] > Data[:, heiken_open] and Datali - } hedken open}? ~patali, buy) = 1 yata[i, heiken_close] < dat 3 batal eiken._¢ 1, sell heiken_open] and Datali - Ly heiken,¢ # The variable heiken close reft to the Heiken closing candle # the variable heikenopen x ‘to the Heiken opening candle | \naiA oxime mioaioheatain fugue Hak te‘moot aan as Treg Th Flue non ty Stan kana Te Srp an. 224 acum (onthe right, the Helken Ashi chart on EURUSD. On the let, the signals generated on the same chert. (Image by Author) Now, we will see the results based on the above strategy. Intuitively, this is a trend-following strategy. We will not use any risk management system for this back-test. Heiken Ashi Strategy “Hs | Waal oxime mioaioheatain fugue Hak sa‘moot aan as Treg Th Flue non ty Stan kana Te Srp an. 224 acum Equity curves following the Helken-Ash strategy image by Author) Conclusion Why was this article written? It is certainly not a spoon-feeding method or the way to a profitable strategy. If you follow my articles, you will notice that I place more emphasize on how to do it instead of here it is and that I also provide functions not full replicable code. In the financial industry, you should combine the pieces yourself from other exogenous information and data, only then, will you master the art of research and trading. Lalways advise you to do the proper back-tests and understand any risks relating to trading. For example, the above results are not very indicative as the spread we have used is very competitive and may be considered hard to constantly obtain in the retail trading world (but not impossible). However, with institutional bid/ask spreads, it may be possible to lower the costs such as that a systematic medium-frequency strategy starts being very profitable. Moninedin nioaiokeanttein tf gucer-eytiont sa‘moot aan as Treg Th Flue non ty Stan kana Te Srp an. 224 acum DataScience MachneLoaming —Arificiareligonce Investing Fnance Learn more. Make Medium yours. Share your thinking. Moninedin nioaiokeanttein tf gucer-eytiont