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How to Trade CFDs on DAX30: Heiken Ashi

Dear traders,

As I already explained in the DAX for beginners article, CFDs on this particular index is an excellent instrument to trade, mainly because of its popularity and volatility. Today, I will present you with an advanced strategy for trading CFDs on DAX30. Have in mind that this is not DAX30 scalping, but rather an intraday to intraweek trading strategy, where traders can hold on to bigger moves. The strategy is very unique as it is based on Heiken Ashi candlesticks and can be traded on both MT4 & MT5.

So let's cut to the chase and see what it is all about...

Heiken Ashi in Short

HA candlesticks are loved by professional Forex & CFD traders all over the world.

And for good reasons.

Heiken Ashi (further referred to as "HA") provides a very clear chart presentation of:

  1. direction;
  2. strength;
  3. and momentum.

HA candlesticks are:

  1. vastly different to other Japanese candlesticks because they use a special calculation taken from the previous candle;
  2. average price candles, so they:
    1. are calculated using a moving average;
    2. change colour according to that average.
  3. based on fairly unique representations for open, high, low, and close.

In fact, the best way to get a feel for HA candlesticks is to put them on your chart and see how they look. But before you do that, I recommend you:

  1. download and install the innovative MetaTrader 4 Supreme Edition plug-in, to get the most out of this HA strategy;
  2. create a blank space to put your HA candles on, by setting your line chart to none under chart properties.

Now, you should have a clear view of the HA candlesticks on your chart.

You will note that the colour of an HA candlestick is:

  1. blue when the HA close is above the HA open;
  2. red when the HA close is below the HA open.

But HA candles can also stay one colour for a long period of time – hundreds of pips on a 4-hour chart.

And another important thing – catching and holding onto long trends may, potentially, be very profitable, especially when you're trading CFDs on DAX30.

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Heiken Ashi Strategy Setup and Overview

Time to launch this strategy, but first we need a template.

To create this template:

  1. go to your chart and Insert the HA indicator;
  2. right-click on your chart and click Heiken Ashi;
  3. now click Inputs and set the colours shown below.

chart.png

Source: Heiken Ashi indicator, Admiral Markets MT4 platform

You can now adjust the colours of DAX30, by right-clicking on Properties.

Your basic chart looks like the example below.

Source: DAX30, Admiral Markets MT4 platform

Once you have made these adjustments, your main chart window will look like the following example.

Source: DAX30, H4 chart, Admiral Markets Oct-Nov 2017

You will notice that HA read a little differently to other Japanese candlesticks.

Strong bullish HA candles have bodies with an upper wick, while strong bearish HA candles have bodies with a lower wick.

ha cs2.png

Source: Nenad Kerkez T

This strategy requires four more indicators, which you can add now.

Extra Indicators:

  1. Admiral Market Pivot

am pivot.png

Source: Admiral Pivot indicator, Admiral Markets MT4 platform

2. SMA 9

Source: Admiral Markets MT4 platform

3. EMA 200

EMA.png

Source: Admiral Markets MT4 platform

4. MACD (5,13,1)

MACD.png

Source: Admiral Markets MT4 platform

Time frame: 4H

Rules:

Before we get into the specifics, always remember:

Follow the basic rule of professional Forex trading – which is to sell high and buy low.

HA is great for swing trades, so we will use a proximity of:

  1. R1, R2 and R3 for selling
  2. S1, S2, S3 for buying.

Set your Admiral Markets pivot indicator to weekly.

Now, we just follow the trend.

When the price is:

  1. below EMA 200, the trend is bearish;
  2. above EMA 200, the trend is bullish.

There is no straying away from the rules.

With a bearish trend, you sell.

Source: DAX30, H4 chart, Admiral Markets Jul-Aug 2017

With a bullish trend, you buy.

Source: DAX30, H4 chart, Admiral Markets Sep-Oct 2017

Once we have determined the trend, we need to find our entries.

Long position entry requirements include:

  1. the price needs to be close to S1, S2 or S3 and eventually the pivot point;
  2. the price also needs to be above EMA 200;
  3. any of previous 1 to 3 HA candles need to be red, followed by a blue HA candle;
  4. the blue HA candle breaks through SMA9 and closes above it – preferably as a strong candle;
  5. MACD is at or above 0 (preferably above).

You can now enter a long trade.

Source: Source: DAX30, H4 chart, Admiral Markets Sep-Nov 2017

But before we go on, can you confirm why the red HA candle is followed by a blue HA candle in the long position? If not then don't worry, I'll explain.

Basically, retracement is always needed in an uptrend because we want to trade with a better price.

So when we see the red HA candle:

  1. in an uptrend, it indicates a needed retracement;
  2. followed by a blue HA candle, it means the retracement is over and we can look for an entry.

It is similar with sell entries, where Blue HA candles are followed by red HA candles when the retracement is over.

Short position entry requirements include:

  1. the price needs to be close to R1, R2, or R3 and eventually the pivot point;
  2. the price needs to be below EMA 200;
  3. any of previous 1 to 3 HA candles needs to be red, followed by a blue HA candle;
  4. the blue HA candle breaks through SMA9 and closes below it, preferably as a strong candle
  5. MACD is at or below 0 (preferably below).

You can now enter a short trade.

Source: Source: DAX30, H4 chart, Admiral Markets Oct-Nov 2017

Your target is any of the subsequent Admiral Market pivot points.

And when the market is undecided, you can secure a free ride by:

  1. setting a Stop-Loss (which is, of course, effective risk management,regardless of how you move)
  2. close ½ of a position (scaling-out) and put the rest to break-even +1 (our entry point +1 pip).

For example, if you went short close to R2 – you could take profit at any lower pivot point, i.e. R1, PP, S1,S2 or S3.

Stop-Loss: set 5 to 10 pips above your entry candle.

The Heiken Ashi Strategy in Action

HA strategy allows for multiple long entry possibilities.

The best entries are always found at the beginning of a trend, when MA's are converged, i.e., close to each other.

The short trade example below, shows multiple entries that were possible without strong candles.

Source: DAX30, H4 chart, Admiral Markets Jun-Jul 2017

The next chart represents entries with strong candles – notice how the best entries are always made on good trending candles.

Source: DAX30, H4 chart, Admiral Markets April-May 2017

Heiken Ashi Pros

The HA system offers visual simplicity and efficiency. The strategy is suitable for traders who don't want to monitor their charts 24/5. Having said that, I specifically refer to part-time traders and traders who prefer higher time frames. There will be less action, but you might be less stressed-out.

HA candles are colour-coded, so you there is no need to memorise complex candlestick patterns. Major trends are easier to detect and follow with this method.

Additionally, the system will save you from entering too early and exiting too late.

I advise:

  1. trading at 0.5% to 1% of risk per position;
  2. keeping the overall daily risk below 3%;
  3. never risking more than 5% per day.

Heiken Ashi Cons

Source: Nenad Kerkez T

If you are impatient – walk away now.

Rushing trades on this strategy, within the provided shorter than suggested time frame (4h) – might decimate your funds. There will be no multiple entries per day on the DAX either, which could be considered a benefit for traders with a relaxed style and quite the opposite for others.

The Wrap-Up

This strategy should ideally be used with the MetaTrader4 Supreme Edition, as the default MT4 does not have the Admiral Markets Pivot indicator, and this plug-in is excellent! Maybe in the future, the strategy could also be coded as the part of DAX scalping EA or DAX trading EA.

Free Education Webinars

If you're searching for a pivot indicator other than via this plug-in – be careful because there are many poorly coded versions out there which might clog your CPU.

Have in mind that this strategy can easily be applied on Admiral Markets MetaTrader 5, so feel free to use it on the new revamped MT5 as well.

Source: DAX30, H4 chart, Admiral Markets MT5, MT5 plug-in, April-May 2017

Finally, note that you should always try to trade major sessions. Admiral Day Session is therefore an ideal fit with the Heiken Ashi strategy, because it shows you the active session at a glance.

If you'd like to learn more about trading strategy, you should check out our wider education section, where you'll find a whole host of articles dedicated to the subject. You can also learn about trading psychology, set-ups, indicators and lots more! Have a look…

If you have any questions, feel free to ask in the comment section below.

Cheers and safe trading,

Nenad

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