How to Trade CFDs on DAX30: Heiken Ashi
Reading time: 12 minutes
CFDs on this particular index are an excellent instrument to trade, mainly because of its popularity and volatility. This article will present you with an advanced strategy for trading CFDs on DAX30. Bear in mind that this is not a DAX30 scalping strategy, but rather, an intraday to intraweek trading strategy, whereby traders can hold onto bigger moves. This strategy is very unique as it is based on Heiken Ashi (HA) candlesticks, and can be traded on both MetaTrader 4 (MT4) & MetaTrader 5 (MT5).
Heiken Ashi in Short
HA candlesticks are loved by professional Forex & CFD traders all over the world, and for good reason. Heiken Ashi provides a very clear chart presentation of direction, strength, and momentum. HA candlesticks are vastly different to other Japanese candlesticks because they use a special calculation taken from the previous candle 'average price candles'. They are calculated using a moving average (MA), and they change colour according to that average.
Additionally, they have fairly unique representations for opens, highs, lows, and closes. 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, it is recommended that you download and install the innovative MetaTrader 4 Supreme Edition plugin.
To get the most out of this HA strategy, 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 a HA candlestick is blue when the HA close is above the HA open, and red when the HA close is below the HA open.
But HA candles can also remain one colour for a long period of time – with 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.
Heiken Ashi Strategy Setup and Overview
Time to launch this strategy, but first we need a template.
To create this template:
- Go to your chart and insert the HA indicator
- Right-click on your chart and click 'Heiken Ashi'
- Now click 'Inputs' and set the colours shown below:
Source: MetaTrader 4 - Editing the inputs for the Heiken Ashi Indicator
You can now adjust the colours of the DAX30 chart by right-clicking on 'Properties'. Your basic chart will look something like the example below:
Source: MetaTrader 4 - Editing the properties of the DAX30 graph
Once you have made these adjustments, your main chart window will look like the following example (see below):
Source: DAX30 CFD - H4 chart - Data Range: 2 Oct, 2017 - 15 Nov, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
You will notice that HAs 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.
Indicators for the Strategy
This strategy requires four more indicators, which are as follows:
- The Admiral Market Pivot
Source: MetaTrader 4 - Setting the inputs for the Admiral Market Pivot
2. The Simple Moving Average (SMA) 9
Source: MetaTrader 4 - Settings the parameters for the SMA
3. The Exponential Moving Average (EMA) 200
Source: MetaTrader 4 - Settings the parameters for the EMA
4. MACD (5,13,1)
Source: MetaTrader 4 - Settings the parameters for the MACD indicator
- Time frame: 4H
Before we get into the specifics, always remember to 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: R1, R2 and R3 for selling and S1, S2, S3 for buying. Set your Admiral Markets pivot indicator to weekly. Now, we simply follow the trend. When the price is below the EMA 200, the trend is bearish, and when it is above the EMA 200, the trend is bullish. There is no straying away from the rules. With a bearish trend, you sell (see the graph below):
Source: DAX30 CFD - H4 chart with a MACD indicator applied - Data Range: 6 Jul, 2017 - 16 Aug, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
With a bullish trend, you buy (see the graph below):
Source: DAX30 CFD - H4 chart with a MACD indicator applied - Data Range: 11 Sep, 2017 - 23 Oct, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
Once we have determined the trend, we need to find our entries. Long position entry requirements include:
- That the price needs to be close to S1, S2, or S3 and eventually the pivot point
- That the price also needs to be above the EMA 200
- That any of the previous 1 to 3 HA candles need to be red, followed by a blue HA candle
- That the blue HA candle breaks through the SMA9 and closes above it – preferably as a strong candle
- That the MACD is at or above 0 (preferably above)
You can now enter a long trade.
Source: DAX30 CFD - H4 chart with a MACD indicator applied - Data Range: 22 Sep, 2017 - 7 Nov, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
But before we go on, can you confirm why the red HA candle is followed by a blue HA candle in the long position? Retracement is always needed in an uptrend because we want to trade with a better price. So when we see the red HA candle in an uptrend, it indicates a needed retracement, and when it is followed by a blue HA candle, this means that the retracement is over, and that we can look for an entry. This is similar with sell entries, wherein blue HA candles are followed by red HA candles when the retracement is over.
Short position entry requirements include:
- That the price needs to be close to R1, R2, or R3 and eventually the pivot point
- That the price needs to be below the EMA 200
- That any of the previous 1 to 3 HA candles need to be red, followed by a blue HA candle
- That the blue HA candle breaks through the SMA9 and closes below it, preferably as a strong candle
- That the MACD is at or below 0 (preferably below)
You can now enter a short trade.
Source: DAX30 CFD - H4 chart with a MACD indicator applied - Data Range: 19 Oct, 2017 - 21 Nov, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
Your target is any of the subsequent pivot points, and when the market is undecided, you can opt to:
- Set a stop-loss (which represents effective risk management, regardless of how you move)
- 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 for the short close to R2 – you could take profit at any lower pivot point (i.e. R1, PP, S1,S2 or S3). Additionally, your stop-loss should be set 5 to 10 pips above your entry candle.
The Heiken Ashi Strategy in Action
The HA strategy allows for multiple long entry possibilities. The best entries are always found at the beginning of a trend, when the MA's are converged (i.e. close to each other). The short trade example below displays multiple entries that were possible without strong candles:
Source: DAX30 CFD - H4 chart with MACD applied - Data Range: 20 Jun, 2017 - 11 Jul 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
The next chart represents entries with strong candles – notice how the best entries are always made on good trending candles:
Source: DAX30 CFD - H4 chart with MACD indicator applied - Data Range: 11 Apr, 2017 - 25 May, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
Heiken Ashi Pros
The HA system offers visual simplicity and efficiency. This strategy is suitable for traders who don't want to monitor their charts 24/5. Having said that, we are specifically referring 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 there is no need to memorise complex candlestick patterns. Major trends are easier to detect and follow with this method. Additionally, the system will prevent you from entering too early or exiting too late.
It is recommended to:
- Trade at 0.5% to 1% of risk per position
- Keep the overall daily risk below 3%
- Never risk more than 5% per day.
Heiken Ashi Cons
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.
This strategy should ideally be used with the MetaTrader 4 Supreme Edition plugin, as the default version of MT4 does not include the Admiral Markets Pivot indicator. Perhaps in the future this strategy could also be coded as part of DAX scalping EA or DAX trading EA.
If you're searching for a pivot indicator other than what is available via this plugin – be careful, because there are many poorly coded versions out there which might clog your CPU. Bear in mind that this strategy can easily be applied on the MetaTrader 5 Supreme Edition plugin as well.
Source: MetaTrader 5 Supreme Edition - Mini Terminal - DAX30 CFD - H4 chart - Data Range: 19 Oct, 2017 - 23 Nov, 2017 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
Finally, please note that you should always try to trade major sessions. For instance, an 'Admiral Day Session' is 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 general trading strategies, make sure to check out Admiral Markets' education section, where you'll find a whole host of articles dedicated to the subject. You can also learn about trading psychology, trading setups, trading indicators, and much more!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.