-Matthew P. Jones, Ph.D.
Heikin Ashi Candlesticks: A Smoother Perspective on Market Trends…
Unlike traditional candlesticks, Heikin Ashi applies a modified formula that averages price movements, helping to filter out noise and highlight trend direction.
🔹 How We Use Heikin Ashi?
Rather than use Heikin Ashi for short-term stock trading (our Firm believes in a longer-term “buy and hold” investment strategy), we use Heikin Ashi to aid us in covered call writing. Of course, we don’t rely exclusively on this tool. But, we have found it helpful in our overall decision making process. Some benefits over traditional candlesticks that we have noticed…
✅ Trends Are Easier to Spot – The smoothing effect reduces choppiness, making it clearer when a trend is strengthening or weakening.
✅ Better Covered Call Writing – Writing a covered call only to watch the underlying stock price move upward is disappointing. Heikin Ashi helps us avoid this situation by pointing out trend reversals to the downside. This helps increase our chances of maximizing the premiums we collect for our clients.
💡 While not perfect for precise entry/exit points, Heikin Ashi can be a useful tool for confirming trends and reducing emotional trading decisions.