Heiken Ashi and Price Action concepts by

Swaminathan

Tradable Markets and Time Frame:

All kinds of markets where there is liquidity. This strategy
can be used for Intraday, Swing, Positional and Investing
by changing the time frame suitably. The time frame is
15M for intraday.
Heiken Ashi candles Concepts:

• Every Heiken Ashi candle open at the mid-point of

the previous Heiken Ashi candle.
• Open of Heiken Ashi candle is calculated using
previous normal candles high and low - (High +
Low)/2
• Close of Heiken Ashi candle is calculated using
OHLC of normal candles- (O+H+L+C)/4

When we see a doji Heiken Ashi candle forming, it signals

us that the momentum is slowing down. It is not a
reversal sign and it does not tell us which way the price is
going to move next. Reversal signal occurs when Heiken
Ashi candle breaks the high of the previous Heiken Ashi
candle after a down move or when Heiken Ashi candle
breaks the low of the previous candle after the up move.
We can think of Heiken Ashi candle as a form of a
moving average. If the chart is forming red Heiken Ashi
candles and then if we see a Heiken Ashi candle breaking
the high of the previous red candle then this indicates
bullish strength as prices are now moving above the
Heiken Ashi candle average. This occurs only when
buying pressure is strong.

If the chart is forming green Heiken Ashi candles and

then if we see a Heiken Ashi candle breaking the low of
the previous green candle then this indicates bearish
strength as prices are now moving below the Heiken Ashi
candle average. This occurs only when selling pressure is
strong.

When any of the above two scenarios occur at support or

resistance levels, it tells us that sellers or buyers have
entered the market and are no longer willing to be
dominated by the opposite party.

Deciding Market Bias:

Opening price of the day (On spot chart with normal
candlestick) is the most important price level for the day.
This price will decide the bias for the day.
Rules:
• If price is trading below the open of the day, then the
market bias is down and we look at taking only short
trades. In this scenario we can take long trades as well
only when the price is taking support or if the price
breaks the open to the upside and comes back to
retest
• If price is trading above the open of the day, then the
market bias is up and we look at taking only long
trades. In this scenario we can take short trades as
well only when the price is being rejected at resistance
or if the price breaks the open to the downside and
goes up to retest
How to confirm the bias using index constituents:
We need to check the index constituents to see whether
the bias we are seeing in the index is likely to sustain or
not and whether the bias is strong or weak. The moment
we have this clarity, it will help us to take our trade setup
without fear and we will not worry of any intermediary
move the index makes.
For example, If BANKNIFTY is trading below the open
then the bias is down, now we can take a look at
HDFCBANK and ICICIBANK to gauge the strength.
These 2 stocks constitute about 50% of the weightage in
BANKNIFTY.
When the BANKNIFTY bias is down and HDFCBANK
and ICICIBANK are green, we can come to the
conclusion that the BANKNIFTY downward bias is
weak. If both of these stocks are red, then we can come
to the conclusion that the downward bias of
BANKNIFTY is strong. We can analyze the bias strength
of any indices using this method.
Nifty constituents by weightage: HDFCBANK,
RELIANCE, TCS and INFY
Trade Location:
Price always stops at support or resistance levels and not
at random locations.
Take trades only at support or resistance levels. If you get
entry in between support and resistance levels, ignore
those entries, especially counter trend entries as these
kinds of entries are mere retracement and price may not
move much and will move back in the direction of the
trend set by the day.
Marking Support and Resistance Levels:
Time Frame: 1HR and use Heiken Ashi candles
Look for Heiken Ashi candles in the 1HR chart and find
out where it has stopped forming higher high or lower
low Heiken Ashi candles.
When Heiken Ashi green candle starts forming, mark
each and every place where it has not formed a higher
high Heiken Ashi candle, this will be resistance level and
mark places as support levels where it has failed to form a
lower low Heiken Ashi candle after Heiken Ashi red
candle starts forming.
For stocks that are trading at all-time high or all-time low,
we can use Fibonacci extension tool to find next
resistance or support levels. 1.618% acts as a good
support and resistance level in these stocks.
Examples:
Generally on Friday and Tuesday market drifts without
any direction and it will be a premium eating day. This is a
general observation, on some occasion’s market moves
with momentum on these days as well.
Important questions to ask on each trading day:
• Where am I going to take the trade?
• Which direction?
• Whether to take a CE or PE trade and their entry
location
Flow of price:
Prices will keep moving up and down in waves. Price
moves because of supply and demand pressure.
Don’t try to predict the price movement, just follow the
price.
Heiken Ashi Setup:
When Heiken Ashi candle is forming green candles, the
price is going towards resistance; we do not want to buy
when price is nearing resistance.
When Heiken Ashi candle is forming red candles, the
price is going towards support; we do not want to sell
when price is nearing support.
We always sell at resistance and buy at support.
In this setup, we always look to buy when there is a red
Heiken Ashi candle forming and price is trading above
the open and look to sell when there is green Heiken Ashi
candle forming and price is below the open. If the price is
at support or resistance levels we can look for reversals
after price gets rejected at these levels.
We will only be looking at buying option and not selling
options.
• When trend is down, look to buy PE
• When trend is up, look to buy CE
Identifying choppy market conditions:
When both CE and PE are moving down together
printing red HA candles, it means that premium eating is
going on and it is a choppy market. When momentum
starts changing, you will start to see green HA candles
printing in either PE or CE indicating a change in market
condition and momentum is building up.
Buy Entry:
Take entries only at support when the below criteria
satisfies and bias is up
When Heiken Ashi candle is moving lower and printing
red candles, we place buy order above the high of the
previous Heiken Ashi candle. When current HA candle
breaks the high of the previous HA candle, out entry will
be triggered. We then switch to normal candlestick, and
place a buy order above the high of the previous normal
candle and SL below the previous normal candle low with
a small buffer and the target will be at next immediate
resistance.
Buy Entry Example:
Sell Entry:
Take entries only at resistance when the below criteria
satisfies and bias is down.
When Heiken Ashi candle is moving higher and printing
green candles, we place sell order below the low of the
previous Heiken Ashi candle. When current HA candle
breaks the low of the previous HA candle, out entry will
be triggered. We then switch to normal candlestick, and
place a sell order below the low of the previous normal
candle and SL above the previous normal candle high
with a small buffer and the target will be at next
immediate support.
Sell Entry Example:
Which strike prices to choose?
Friday: This day is usually a premium eating day. Do not
take ATM strike prices. Prefer deep OTM strike prices on
this day.
Monday to Wednesday: Move the strike prices from
deep OTM gradually towards ATM from Monday to
Wednesday.
Thursday: Prefer only ATM strike prices, by this time
premium decay would have happened and you will get
these ATM’s at much cheaper price
Ex: On Friday, if 36500 is CMP of BANKNIFTY,
choose OTM of CE and PE 1500 points away from CMP
of BANKNIFTY. i.e. 38000 CE and 35000 PE
Move this range of 1500 points from BANKNIFTY
closer to CMP as we get closer to expiry.
 Range Strike Price for
Option Entry 36500 spot price
Day Type (Points) for BankNifty
Deep 38000CE -
Friday OTM 1500 35000PE
37500CE -
Monday OTM 1000 35500PE
37000CE -
Tuesday OTM 500 36000PE
Close to 36750CE -
Wednesday ATM 250 36250PE
36500CE -
Thursday ATM CMP 36500PE

Trading Stock Options:

Stock Selection:
From 9:15 AM to 9:45 AM, in NSE website, go to Top
gainers and losers section, in this either look at Nifty 50
or F&O securities and keep refreshing the list for top
gainers or losers, if you see the same stocks appearing in
the list from 9:15 AM to 9:45 AM, it means that there is a
momentum being built up in these stocks.
If index is trading in red, pick top losers and your
direction should be on put option in these stocks.
If index is green, pick top gainers and your direction
should be on call option in these stocks.
This solves the bias of the day problem.
Choosing stock options strike price:
Once you have selected the stock, add 3% to the spot
price to decide the strike price for CE and subtract 3%
from spot price to decide the strike price for PE
Entry Examples:
Taking long entry in CE
If BPCL is trading at 457 and is appearing in top gainers
list with nifty is green, we add 3% to the spot price of
BPCL, which will be 457+13=470.71. We can use this
price to select the strike price of 470 CE.
In 470 CE strike price chart, look for red HA candles to
form and take entry when price breaks the high of the
previous red HA candle with SL below the low of normal
candlestick.
Taking long entry in PE
If BPCL is trading at 457 and is appearing in top losers
list with nifty is red, we subtract 3% to the spot price of
BPCL, which will be 457-13=443.29. We can use this
price to select the strike price of 440 PE.
In 440 PE strike price chart, look for red HA candles to
form and take entry when price breaks the high of the
previous red HA candle with SL below the low of normal
candlestick.
If you do not see profits on stock options in intraday, you
can hold the trade for next 2 or 3 days and preferably not
towards the end of the month expiry.
Psychology Tips:
If you miss the entry, do not try to chase prices and get
in. It is not the end of the world, market is going to be
there tomorrow and you will get good opportunities.
It is always better to miss the opportunity than to let your
account drain out slowly.
Most of the time, psychological problems happen to us
because of fear and greed. In trading it is all the more so
because of your money on the line.
Fear is a feeling of uncertainty, you can vanish uncertainty
by entering at the best possible price and location. The
next fear will only be weather the price will turn back and
reverse, if you keep you SL’s manageable and within your
risk tolerance, by and large your fear will vanish.
The next fear is when price starts to move in your
direction and it starts to consolidate. As long as you keep
trailing your stop losses, this anxiety will also go away
The next factor is greed, which is related to profit taking
aspect of our trade. Mark the support and resistance
levels and watch for price action near these levels, take
full profit when price gets rejected from these levels or
keep trailing the stop loss if it starts to break the support
or resistance levels.
When you are in a trade, and price starts to move in
opposite direction, switch to Heiken Ashi candle to see if
they are also indicating the same, if so, exit the trade and
wait for the next setup to enter again.
We can never catch the market tops and bottoms, it is
impossible. What we can try is to get entry and exits as
close to the tops and bottoms as possible.
If you have to enter, enter at the right location.
FAQ’s
Do we wait till the confirmation candle to close or can we enter long
trade as soon as the price breaks the previous red HA candle high
in intra bar?
We don't wait for confirmation. We will place an SL-M
order above high of every previous HA candle and it will
get executed as soon as price breaks the high of the
previous red HA candle, even if the price was crossed and
then closed below it.
Does the confirmation candle which breaks the high of previous red
HA candle for long trade needs to be a green HA candle or can it
be red HA candle as well?
Confirmation candle can be any color.
How to avoid whipsaws?
The key is to mark support and resistance levels and only
take entry signals that we get at support or resistance
levels, this will reduce whipsaws. Even if we get
whipsawed, loss will be quite small in this strategy.
Chartink scanners:
For identifying momentum stocks:
Bearish Scanner: Pick stocks that have liquidity in the below
scanner
https://chartink.com/screener/price-near-low
Bullish Scanner: Pick stocks that have liquidity in the below
scanner
https://chartink.com/screener/price-near-high-1
Intraday Scanner:
Bullish Scanner:
https://chartink.com/screener/15-min-crossed-above-ha-red-
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Bearish Scanner:
https://chartink.com/screener/15-min-crossed-below-ha-
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Positional Scanner for futures:
Bullish Scanner:
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Bearish Scanner:
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