A Better Way To Analyze A Chart

12 Sep A Better Way To Analyze A Chart

Many of you who have been following my blog or have been one of my students know that I utilize candlestick charts to analyze a stock, commodity or any asset class. However, in the past year I’ve been using and having some success in using an offshoot of the Japanese candlestick charts, the Heikin-Ashi Candlesticks. For those who don’t know, it’s a form of charting developed in Japan by Munehisa Homma in the 1700s. The most important benefit of using them is it helps filter a lot of noise, which I call choppy markets and provide a cleaner looking visual representation of the trend that you are trying to identify. It allows traders to easily spot the trend because the “Trend is your friend” as well as spot price reversals. Here’s an example of a Heikin-Ashi Candlestick Chart for one of my favorite stocks: APPLE (AAPL).

Now let me show you this same chart of AAPL but using Candlestick Charts.

 

Even though you can see that the price trend of Apple stock price is UP, what you can’t see clearly is when to safely buy the stock AND when to stay in the stock given that the price is going up. There are a few examples in the AAPL chart that I would like to illustrate the benefits of using Heiken-Ashi (HA) charts instead of Candlesticks (C).

Example #1 (April-May 2016)

You can clearly see on the HA charts that you would avoid buying the stock (ALL RED BARS) until you see a safer entry point, which would be the first BIG GREEN BAR.

Example #2 (Dec 2016-Feb 2017)

You can see on the HA charts that nearly all the bars on the chart are GREEN so if you were holding the stock then you probably wouldn’t have sold a single share. However, on the C chart, it isn’t as clear as the HA chart.

I’d like you to try it out for yourself and see if it can help you improve your chart analysis.

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