A Heikin-Ashi Trend Strategy Using the 200 EMA

Project Details
Bit_strategy1_heikish: An advanced trend-following strategy

Strategy Implementation

Initial setup and imports for the Heikin-Ashi strategyCore strategy implementation with Stochastic RSI calculationsExecution code and package requirementsAdditional package requirementsTrading data with timestamps and position signalsVisualization code for plotting strategy resultsFinal visualization of the trading strategy chart

Chapter 1: A Trend-Following Strategy with Heikin-Ashi

This trading model, Bit_strategy1_heikish, is built around Heikin-Ashi candlesticks and the 200 Exponential Moving Average (EMA). The goal is to identify the dominant trend and execute trades only in the direction of that trend. Unlike traditional candlesticks, Heikin-Ashi smooths out price action, making trends easier to identify.

Chapter 2: The Rules of the Strategy

The system follows six clear rules:

1. Identify the trend using the 200 EMA

  • If the candles are above the 200 EMA → Only long positions are allowed.
  • If the candles are below the 200 EMA → Only short positions are allowed.

2. Use Stochastic RSI for entry timing

  • When looking for a long position, wait for Stochastic RSI to be in the oversold zone and for the two lines to cross upwards.
  • When looking for a short position, wait for Stochastic RSI to be in the overbought zone and for the two lines to cross downwards.

3. Confirm with Heikin-Ashi candlesticks

  • A strong bullish candle with no lower wick confirms a long entry.
  • A strong bearish candle with no upper wick confirms a short entry.

4. Timeframe adjustments

  • The strategy can be adapted to different trading styles:
    • 15-minute timeframe for short-term intraday trading.
    • 4-hour timeframe for swing trading.

5. Risk management

  • The stop-loss to take-profit ratio is set at 2:1.
  • Maximum risk per trade: 3% stop loss, 1.5% profit target.

Chapter 3: Why This Strategy Works

  • Trend following: Trading in the direction of the 200 EMA reduces losses from counter-trend trades.
  • Heikin-Ashi confirmation: Filters out weak signals by requiring strong trend candles.
  • Stochastic RSI: Helps with precise entry timing by waiting for oversold/overbought crossovers.

Chapter 4: Potential Improvements

Although this system is effective, it can be improved by:

  • Adding volume confirmation: Higher volume at entry signals stronger trends.
  • Testing different risk ratios: A 3:1 reward-to-risk ratio could improve performance.
  • Implementing trailing stops: Locking in profits as the trade moves in the right direction.

This strategy provides a structured way to trade with the trend using a combination of Heikin-Ashi, Stochastic RSI, and the 200 EMA. While no system is perfect, this method offers a solid foundation for trend-based trading.

For access to the Python implementation, please email me at: songgunlee@ucsb.edu