A Better Indicator?

[richardsok]

For those who keep an eye on technical indicators, you might want to take a look at the Heiken-Ashi Indicator (sometimes spelled a little differently).

To get the basic theory in a couple of paragraphs you can look it up on investopedia.

Then go to barcharts.com (They will let you scan twenty stocks a day without charging you anything.)

When you get your stock chart, hit the SETTINGS button and apply Heiken-Ashi Indicator.   It will remain as you go from stock to stock looking at different stock charts.

To apply the Heiken Ashii  for longer time periods and fewer trading signals, try the Heiken Ashii Smoothed Indicator on barcharts.  I like it b/c it clearly indicates when a trend is weakening.  To get the SMOOTHED variation, click on STUDIES and find HEIKEN ASHI SMOOTHED.

I've been using the HAI for several weeks now and have had good success.   I have found it doesn't do to use the HAI in conjunction with other tech signals.  To do so merely muddies the water and makes choices more difficult.  I use the HAI alone or I don't use it at all.  Best to apply it on low volatility assets with a goal of larger gains and smaller losses.

For me, so far so good.     Comments?

[uncleharley]

Investopedia makes it sound great like a great indicator when the market is consolidating recent gains or losses by filtering out false signals. It has been my observation that the markets spend most of its time going sideways or drifting in a consolidation pattern. The following paragraph seems to sum up their view.

"The Heikin-Ashi technique reduces false trading signals in sideways and choppy markets to help traders avoid placing trades during these times. For example, instead of getting two false reversal candles before a trend commences, a trader who uses the Heikin-Ashi technique is likely only to receive the valid signal."

[uncleharley]

After toying with the Heiken-Ashi and regular candlesticks on stock charts I can see that it is easier to spot a trend and/or support/resistance lines. Momentum indicators such as MACD seem to be unaffected when comparing the 2 chart methods. On Stockcharts I can switch back and forth between chart styles simply by hitting a couple of keys.  Fwiw, gold appears to be at a bullish breakout on the Heiken-Ashi chart.  FIBO retracement tool seems to work the same as always.  

[archer]

I like the simplicity of having price and momentum in on chart rather than looking at regular candlesticks on one chart and then looking at momentum indicators (RSI, PPO, etc) placed above or below. Also in the case of the later the price chart can appear to be telling a different story than the momentum indicators. If I understand correctly, Heikin-Ashi combines them into one simple reading.

Separate indicators still have their place. The early Aug decline was warned by a declining PPO starting late June through July while price was going up. This divergence often precedes price declines.

[richardsok]

Stockcharts offers the Heiken-Ashi option, but only barcharts.com also offers the HEIKEN-ASHI SMOOTHED indicator -- to my knowledge. Even thinkorswim doesn't have it. You might look at it -- especially appropriate for people who dislike frequent trading. (And let's face it, guys -- some of us ARE rapid traders.)

[uncleharley]

A feature I don't like about the Heiken-Ashi is the elimination of Gaps in the chart. I find them very useful when doing a short term projection. Perhaps I'll have to work with the method for a while.

EDIT:  I just finished my morning round of checking on my portfolio positions and any prospective trades I may want to make.  The Heiken-Ashi technique does give off signals that seem to have more clarity and one can have more confidence in.  A possible trade I have been considering is to sell something and open a position in the gold miners.  The Heiken-Ashi technique nixed that idea quickly.  My intention is to continue to use the basic candlestick tool as my default and double check any buy-sell-hold decision with the Heiken-Ashi technique.   
Thank You M'Lord.    [chuckle, chuckle].

[archer]

Aug 31, 2023 13:19:53 GMT uncleharley said:

A feature I don't like about the Heiken-Ashi is the elimination of Gaps in the chart. I find them very useful when doing a short term projection. Perhaps I'll have to work with the method for a while.

True for Stockcharts, but on the Barchart platform the Heikin-Ashi is an overlay so you can see daily price action with gaps at the same time. 

I emailed Stockcharts recommending the smoothed version as an overlay ands referred them to Barchart, so hopefully they will someday add it but I won't be holding my breath on that one.

One thing I was overlooking in my earlier post favoring having price and momentum (in this case Heikin-Ashi) combined is that as UH said, you can't see gaps, and also you can't see how far price has moved away from the H-A candles. I noticed looking at the Barchart version that the more you smooth the further current price can move away. This can be especially important when entering a position for the first time as an aid to setting the smoothing parameters, to avoid a larger whipsaw. Once you have been on a good ride for a few weeks, a slower chart doesn't matter as much.

[anitya]

I bookmarked the thread.

[oldskeet]

Hi guys. I have followed the discussion on the Heikin-Asi overlay; however, I like the Elder Impulse System overlay better as it uses a red, blue and green to reflect price movement along with entry and exit points.  Generally, a position is built slowly and exits are quick.

[richardsok]

Sept 1, 2023 10:43:21 GMT oldskeet said:

Hi guys. I have followed the discussion on the Heikin-Asi overlay; however, I like the Elder Impulse System overlay better as it uses a red, blue and green to reflect price movement along with entry and exit points.  Generally, a position is built slowly and exits are quick.

Elder Impulse?   Never hoid of it.   The only Impulses this Elder is aware of are the kind to avoid when he's had one too many.

I did find it finally on stockcharts.  Back in high school  I had the eyes to hit a fast ball (once in a while) -- but with my present dims, I have to practically use a magnifier.  I think I'll stick with HAI.  But, hey -- that's me.

Good luck with it, skeeter.

[uncleharley]

Viva La Difference!! Since I am not a subscriber to Bar Charts and because the Heiken-Asi system changes the size of the candlesticks and subsequently changes some of the patterns I am used to using, I have decided not to use the Heiken-Asi system. However, I do subscribe to Stockcharts & the color coding for the Elder system adds to or compliments the system that I currently use which relies on Price & volume patterns as well as support/resistance levels & a host of other indicators. Consequently I am changing the default setting on my Daily charts to the Elder system from the basic Candlestick. I want to use that system for a while before I change the default on my weekly and monthly charts.

[bigseal]

Indicators, candlesticks, charts, ouija boards, etc., are all total nonsense.  All you need to know is corporate earnings go up over time and stock prices eventually follow earnings.  No need  in over complicating it because Wall Street does too much of that in order to justify salaries and fees.  The people who consistently make the most money over time are the truly rare ones who are steadfastly positive in spite of vast uncertainties and panic in the markets, and; keep investing simple by being nearly all equities at all times. In my experience, the people who are always positive on the stock market over the long term are also the most positive people generally.  They are the people you want to socialize with and marry into your family.  Not the Debbie Downer type who sees only negatives in everything.  

[uncleharley]

I would rather be negative and right than positive and wrong.

[archer]

Sept 1, 2023 18:21:04 GMT bigseal said:

Indicators, candlesticks, charts, ouija boards, etc., are all total nonsense.  All you need to know is corporate earnings go up over time and stock prices eventually follow earnings.  No need  in over complicating it because Wall Street does too much of that in order to justify salaries and fees.  The people who consistently make the most money over time are the truly rare ones who are steadfastly positive in spite of vast uncertainties and panic in the markets, and; keep investing simple by being nearly all equities at all times. In my experience, the people who are always positive on the stock market over the long term are also the most positive people generally.  They are the people you want to socialize with and marry into your family.  Not the Debbie Downer type who sees only negatives in everything.  

bigseal , "Indicators, candlesticks, charts, ouija boards, etc., are all total nonsense. All you need to know is corporate earnings go up over time and stock prices eventually follow earnings."

archer , It looks like you have observed a trending relationship between corporate profits and stock prices and found this relationship significant for investing. You have cited and example of TA.

 bigseal , "No need in over complicating it because Wall Street does too much of that in order to justify salaries and fees. The people who consistently make the most money over time are the truly rare ones who are steadfastly positive in spite of vast uncertainties and panic in the markets, and; keep investing simple by being nearly all equities at all times."

archer , Do you really believe those that buy low and sell high don't make more money than those that just ride the market? There are some people on this forum that ended 2022 with more money than they started due to strategic trading, and many more who lost less than the market, and thus started this years uptrend ahead of the game. 2022 was a minor cyclical bear market. The same applies to longer bear markets. It wasn't until 2013 that the market reached it's 2007 high. TA got people out with less losses and more capital upon re-entry than those that rode the downturn figuring it will turn around one day.

bigseal , "In my experience, the people who are always positive on the stock market over the long term are also the most positive people generally. They are the people you want to socialize with and marry into your family. Not the Debbie Downer type who sees only negatives in everything."

archer , Positivity is a good quality for sure. I think most of us are positive about the market over the long term, and some of us are feeling even more positive due to having the tools to navigate it and out perform. And working with the markets gives us material to post on forums :-)

[FD1000]

Rich, looks like a good indicator. I wanted to point out that barchart also support a chart Adjust price history for dividends, just like stockchart while Yahoo doesn't. To get that go to settings, then events, then select Dividends Back Adjust.

If you look at a chart of SPY (www.barchart.com/etfs-funds/quotes/SPY/interactive-chart) below, this indicator smooth out the small stuff and make you stay longer in the trade. I can't find ONE better indicator that does that.
Great find Rich.

But, Barchart does not keep your setting, you can't save 5 different links and use them later and why I like Stochchart.

Attachments:

[archer]

I wonder how best to set the smoothing. For SPY in the past year if you set both periods to 5 days you get some false signals. Set it to 7 and they get smoothed out. However, this could be different for a different time period or a more or less volatile holding. I guess you have to adjust on a case by case basis to find the optimum smoothing. However the more you smooth, the later the signal in relation to price. Like many indicators, there are times when you have a choice of many small whipsaws or lesser number of greater whipsaws. I think only longer term market trends favor better success.

[richardsok]

Sept 9, 2023 16:45:29 GMT FD1000 said:

Rich, looks like a good indicator. I wanted to point out that barchart also support a chart Adjust price history for dividends, just like stockchart while Yahoo doesn't. To get that go to settings, then events, then select Dividends Back Adjust.

If you look at a chart of SPY (www.barchart.com/etfs-funds/quotes/SPY/interactive-chart) below, this indicator smooth out the small stuff and make you stay longer in the trade. I can't find ONE better indicator that does that.
Great find Rich.

But, Barchart does not keep your setting, you can't save 5 different links and use them later and why I like Stochchart.

Great to see you back, FD.

[flipperxxx]

looks to me like any trade that's 2 - 3 months ends up being break even, more or less, leaving the winners to ones that go on for months, same as with any trend-following system. guess it might all depend on the smoothing settings ...

[richardsok]

Sept 10, 2023 12:50:21 GMT flipperxxx said:

looks to me like any trade that's 2 - 3 months ends up being break even, more or less, leaving the winners to ones that go on for months, same as with any trend-following system. guess it might all depend on the smoothing settings ...

Look some more. flip.   I wrote a whole chapter in my book that technical indicators are more effective when the investor limits himself to LOW VOLATILITY assets to own or to trade.  I stressed using the least volatile assets I could find and called them Deep Volatilities, or D-VolTs.  Check the charts for things like MSFT, AMOM, or BRK-B and you'll see how  accurately  HAI-Smoothed times the
critical B/S signals.  Then look at JEPI, INTC, FUND, AU, SCHD or many others, which swing more wildly, making HAI-S less effective as a longer term timing tool.    If you look closely, you'll see overlay indicators tend to work best when the TRUE price line rarely strays very far from the indicator, whether it be a moving average line or a HAI or a HAI-Smoothed.  With more volatile stocks, one might be more successful using the regular HAI or the two-line MACD..... but even then your success will be less than optimal.

I believe the reason why so many people refuse to use technical indicators is that they persist in trying to apply them onto high volatility stocks or funds, where TIs are least effective.  Having mis-used indicators once or twice, they typically give up on them with a general "won't work" opinion.

.....but, correctly used, they DO work.

[flipperxxx]

i'll have a look again, since i based my statement on FD's SPY chart.
s

[archer]

Just a reminder here, it is easy to fall into the trap of looking at TA charts an assessing them based on whether or not you ended up with more money than you started, compared to B&H. Sometimes you do, and that's great. In the chart above, due to the market's behavior YTD, it's close. Notice that if you sold on the first red stick and buy on the first green, there is some sell low and buy high action if you look at the price line at those initial candle changes. Looking at in another way, what stands out more is risk reduction. Sometimes using the charts will sacrifice some gains compared to B&H in favor of avoiding interim losses. Over time due to exiting just after the peaks, using TA can help your PF grow a better Sharpe than B&H, as long as the longer trend is upward. In a consolidation period the same chart will yield a worse Sharpe and lower returns due to the whipsaws. During those periods I think it helps to go with faster (hourly) charts, but I've never tried that.

[FD1000]

archer , good point. In my world avoiding big losses is the most important aspect of my portfolio as a retiree.

But wait, most didn't catch Rich statement lower volatility funds have done better with T/A (I use extremely low volatility funds).  Below you can see that PRWCX for 2022 + 2023. More  buys were lower than the previous sell.

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[archer]

richardsok, Backtesting seems to show not all assets like the same amount of smoothing, but even that is dependent on their particular history. I can see how lower vol assets would do better than high. So anyways, what numbers do you like to put in for the 2 smoothing periods?

[richardsok]

Oct 27, 2023 6:09:16 GMT archer said:

richardsok , Backtesting seems to show not all assets like the same amount of smoothing, but even that is dependent on their particular history. I can see how lower vol assets would do better than high. So anyways, what numbers do you like to put in for the 2 smoothing periods?

Archie --
   In the briefest of summary --  my book*  suggests the average investor could do very well by limiting himself to the lowest volatility assets he can find and apply the simplest of signals, stripping away all superfluous, unimportant details.  Ex: here I chart BRK/B on stockcharts.com.  Over four months time, I ERASE the true price line (full of its "noisy" zigs and zags) and show ONLY the 3-day and 15-day moving averages.  Key here is to have NO opinion on BRK/B, to trade when the lines cross, ONLY then, but ALWAYS then.    Notice how it captures the great majority of gains, but effectively avoids most (not all!) for the later losses.
     For a confirming trigger, he might use the Parabolic SAR or go to thinkorswim to use the PPS  (which I love).
     There's also the Heikin-Ashi, but it tends to promote too much trading. I recently came across the "HEIKIN ASHI SMOOTHED" on barcharts.com, and it (like the PPS) is a beautiful indicator to use.

*MEMOS From The Stock Trader's Notebook

[richardsok]

One more point: Though the MACD is very often a good confirming indicator, I find limited use for it b/c it frequently displays two flat lines running tight together in a near-flat horizontal when the asset is, in fact, moving either upwards or down. See my chart above. During the first month or so, while BRK/B is moving strongly bullish, the two-line MACD (and the Historigram) run almost flat (or inconclusive.)

I conclude that the MACD is often helpful, but it is not consistently reliable as a technical indicator.

I call my method DVOlT for Deep Volatility Technicals.   It is the method that got me out of PDI & preferred CEFs and into HDGE in timely manner.  I find the more consistently I use the system, the better I tend to do.   Discipline trumps opinions.

[archer]

Thanks Richie. You mentioned the Heiken Ashi Smoothed in your post this morning. That was the target question in my post last night. On Barchart you can set 2 time periods for smoothing. What numbers do you like to plug into the H A chart for smoothing? In your chart above you have 3 and 15 DMAs. Do they cross at the same time the Heiken Ashi chart changes if you set the smoothing to those same numbers? I haven't found on Barcharts website an explanation for what the 2 periods in the boxes to enter a value in for smoothing is based on. I am guessing MAs as that is what is usually used for transitions in other charts.

If in fact it is just MAs then the Heiken Ashi is just another presentation of crossover charts.

Thanks for your detailed response this morning! Much appreciated!

[richardsok]

Oct 27, 2023 15:43:07 GMT archer said:

Thanks Richie. You mentioned the Heiken Ashi Smoothed in your post this morning. That was the target question in my post last night. On Barchart you can set 2 time periods for smoothing. What numbers do you like to plug into the H A chart for smoothing? In your chart above you have 3 and 15 DMAs. Do they cross at the same time the Heiken Ashi chart changes if you set the smoothing to those same numbers? I haven't found on Barcharts website an explanation for what the 2 periods in the boxes to enter a value in for smoothing is based on. I am guessing MAs as that is what is usually used for transitions in other charts.

If in fact it is just MAs then the Heiken Ashi is just another presentation of crossover charts.

Thanks for your detailed response this morning! Much appreciated!

I never did any "numbers fiddling" with the Hekkin-Ashi Smoothed on barcharts.  None at all. Using either a three-month or a six-month chart for a little extra perspective, the darn thing is a beauty right out of the box.    Just look at the six-month for PDI !  You make a bunch of coin (with one brief headfake) on the way up, then you avoid a rain of pain on the way down.  No "what-ifs" or "maybe I mights".  

The only change I made to the basic chart (before applying the Hei-Ashi Smoothed) was to alter the base chart from "candlesticks" to "line".  That way there's less confusion between the base chart and the HE-Smoothed that lays over it.

When I came across this indicator I had to edit my book to include it  (a process I'm completing just now.)

But gotta stress:   DEEP volatility trading assets only.    


www.barchart.com/stocks/quotes/PTY/interactive-chart