Heikin Ashi Trading System

Heikin-Ashi is a trend visualization technique based on Japanese candlestick charting. In-fact, Heikin-Ashi is also a type of candlestick, whose OHLC value differs from the traditional candlesticks. In Japanese, Heikin means “average” and “ashi” means “pace” . Taken together, Heikin-Ashi represents the average-pace of prices. Heikin-Ashi Candlesticks use the open-close data from the prior period and the open-high-low-close data from the current period to create a combo candlestick. In this post we would reveal a Heikin Ashi Trading System coded in Amibroker AFL. This system is optimized for NSE:Banknifty but should work well for other instruments too.

Analyzing price patterns in Heikin-Ashi charts is far more simpler and visually appealing as compared to traditional candlestick charts. See the below image:

Heikin-Ashi Chart

Calculating Heikin-Ashi prices

As discussed above, OHLC value for Heikin-Ashi charts differs from the traditional candlestick charts. It is calculated using the below formula:

• HAClose = (Open+High+Low+Close)/4
  o Average price of the current bar
• HAOpen = [HAOpen(Previous Bar) + HAClose(Previous Bar)]/2
  o Midpoint of the previous bar
• HAHigh = Max(High, HAOpen, HAClose)
  o Highest value in the set
• HALow = Min(Low, HAOpen, HAClose)
  o Lowest value in the set

Heikin-Ashi Trading rules

Below are the 5 important rules (from Investopedia) which should be followed while trading with Heikin-Ashi technique:

• Green candles with no lower “shadows” indicate a strong uptrend: let your profits ride
• Green candles signify an uptrend: you might want to add to your long position, and exit short positions.
• One candle with a small body surrounded by upper and lower shadows indicates a trend change: risk-loving traders might buy or sell here, while others will wait for confirmation before going short or long.
• Red candles indicate a downtrend: you might want to add to your short position, and exit long positions.
• Red candles with no higher shadows identify a strong downtrend: stay short until there’s a change in trend.

In the next section,  we’ll go through an AFL and backtest report for this Heikin Ashi Trading System. 

Heikin Ashi Trading System – AFL Overview

Parameter	Value
Preferred Time-frame	Daily
Indicators Used	EMA
Buy Condition	Formation of Heikin-Ashi green candle with Open=Low, and Close>40 period EMA of Close
Short Condition	Formation of Heikin-Ashi red candle with Open=High, and Close<40 period EMA of Close
Sell Condition	Same as Short Stop Loss Hit Close<40 period EMA of Close
Cover Condition	Same as Buy Stop Loss Hit Close>40 period EMA of Close
Stop Loss	1%
Targets	No fixed target
Position Size	120 Quantities
Initial Equity	200000
Brokerage	50 per order
Margin	10%

Heikin Ashi Trading System – AFL Code

//------------------------------------------------------
//
//  Formula Name:    Heikin Ashi Trading System
//  Author/Uploader: BrokeyForAmiBroker
//  E-mail:          brokeyforamibroker@gmail.com
//  Website:         brokeyforamibroker.blogspot.in
//------------------------------------------------------


_SECTION_BEGIN("Heikin Ashi Trading System");

SetOption( "InitialEquity", 200000);
SetTradeDelays( 1, 1, 1, 1 );
SetOption("FuturesMode" ,True);
SetOption("MinShares",1);
SetOption("CommissionMode",2);
SetOption("CommissionAmount",50);
SetOption("AccountMargin",10);
SetOption("RefreshWhenCompleted",True);
SetPositionSize(120,spsShares);
SetOption( "AllowPositionShrinking", True );

BuyPrice=Open;
SellPrice=Open;
ShortPrice=Open;
CoverPrice=Open;

SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", O, H, L, C ));
 
HaClose = (O + H + L + C)/4; 
HaOpen = AMA( Ref( HaClose, -1 ), 0.5 ); 
HaHigh = Max( H, Max( HaClose, HaOpen ) ); 
HaLow = Min( L, Min( HaClose, HaOpen ) ); 

barcolor = IIf(HaClose >= HaOpen,colorGreen,colorRed);

PlotOHLC( HaOpen, HaHigh, HaLow, HaClose, "", barcolor, styleCandle );

printf("\nHaOpen : " + HaOpen );  
printf("\nHaHigh : " + HaHigh );  
printf("\nHaLow : " + HaLow );  
printf("\nHaClose : " + HaClose );  

Candles=param("Candles",1,1,5,1);
periods=param("periods",40,10,200,10);

Buy = Sum(HaClose >= HaOpen,Candles)==Candles AND HaOpen==HaLow AND C>EMA(C,periods);
Short= Sum(HaClose <= HaOpen,Candles)==Candles AND HaOpen=HaHigh AND C<EMA(C,periods);
Sell=Short OR C<EMA(C,periods);
Cover=Buy OR C>EMA(C,periods);

Buy = ExRem(Buy,Sell);
Sell = ExRem(Sell,Buy);
Short=ExRem(Short,Cover);
Cover=ExRem(Cover,Short);

printf("\nBuy : " + Buy );  
printf("\nSell : " + Sell );  
printf("\nShort : " + Short );  
printf("\nCover : " + Cover );  

Stoploss=param("SL",1,1,5,1);

ApplyStop(Type=0,Mode=1,Amount=StopLoss);


/* Plot Buy and Sell Signal Arrows */
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorGreen, 0, L, Offset=-40);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorLime, 0,L, Offset=-50);
PlotShapes(IIf(Buy, shapeUpArrow, shapeNone),colorWhite, 0,L, Offset=-45);
PlotShapes(IIf(Cover, shapeSquare, shapeNone),colorGreen, 0, L, Offset=-40);
PlotShapes(IIf(Cover, shapeSquare, shapeNone),colorLime, 0,L, Offset=-50);
PlotShapes(IIf(Cover, shapeUpArrow, shapeNone),colorWhite, 0,L, Offset=-45);
PlotShapes(IIf(Sell, shapeSquare, shapeNone),colorRed, 0, H, Offset=40);
PlotShapes(IIf(Sell, shapeSquare, shapeNone),colorOrange, 0,H, Offset=50);
PlotShapes(IIf(Sell, shapeDownArrow, shapeNone),colorWhite, 0,H, Offset=-45);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorRed, 0, H, Offset=40);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorOrange, 0,H, Offset=50);
PlotShapes(IIf(Short, shapeDownArrow, shapeNone),colorWhite, 0,H, Offset=-45);


_SECTION_END();

AFL Screenshot

Heikin Ashi Trading System – Backtest Report

Paramter	Value
	Fixed Position Size
Initial Capital	200000
Final Capital	1726506.44
Scrip Name	NSE Banknifty
Backtest Period	01-Mar-2000 to 09-Mar-2016
Timeframe	Daily
Net Profit %	763.25%
Annual Return %	13.94%
Number of Trades	276
Winning Trade %	25.36%
Average holding Period	11.88 periods
Max consecutive losses	18
Max system % drawdown	-75.62%
Max Trade % drawdown	-32.42%

Clearly, drawdown is on a higher side. It could be overcome with proper Risk Management strategies. 

Equity Curve

Additional Amibroker settings for backtesting

Goto Symbol–>Information, and specify the lot size and margin requirement. The below screenshot shows lot size of 40 and margin requirement of 10% for NSE Banknifty:

Disclaimer:

All the AFL’s posted in this section are for learning purpose. BrokeyForAmiBroker does not necessarily own these AFL’s and we don’t have any intellectual property rights on them. We might copy useful AFL’s from public forums and post it in this section in a presentable format. The intent is not to copy anybody’s work but to share knowledge. If you find any misleading or non-reproducible content then please inform us at brokeyforamibroker@gmail.com

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