Following the Herd: A Moving Average and Heikin Ashi Trading Strategy with a Wild Twist

We are delighted to present another easy-to-use, straightforward trading strategy in today’s edition of our trading strategies posts.

“Following the herd” is a trend-trading strategy that we trust you will find effortless to implement. You can use it on any timeframe and any trading asset or instrument. It’s worth noting that it tends to work well on trending assets like stock indices and some commodities. Trending currency pairs like GBPJPY, GBPAUD, or EURNZD will also work well.

Indicators used:

    * Heikin Ashi

    * Smoothed moving averages (SMA) with periods: 13, 21, 34, 55, 89, 144, 233

The goal is to use the moving average lines to fully confirm the long-term trend in the market. We employ a set of seven smoothed moving averages with a calculation period of 13, 21, 34, 55, 89, 144, and 233. On the chart below, we have colored the smaller (shorter-term) moving averages in blue gradients while the larger (longer-term) moving averages in purple/violet gradients.

As you can notice, the moving averages range from very short-term to very long-term. So, with this strategy, we don’t look to catch either the short-term or long-term trends but rather look to trade only on the side of the confirmed predominant market direction.

The seven moving averages indicate a confirmed market trend when they are all aligned in order – from smallest to largest – and are visibly separated from each other. The trade examples below depict such situations.

Once all seven moving averages have aligned and nicely separated, we look at the Heikin Ashi candles. As you probably know, the Heikin Ashi are a special calculation for the candlesticks, but they do not represent the actual open and closing prices (though they are very similar).

We look for the candle to make a retracement toward the group of seven moving averages. Once the candles enter the area of the moving averages, we look for a bullish Heikin Ashi candle during uptrends or a bearish Heikin Ashi candle during downtrends. This is our entry signal.

The exit signal is when the Heikin Ashi candles print a candle in the opposite direction. So, if the Heikin Ashi prints a red bar during the bullish swings, it is a signal to exit the trade. Likewise, if we see a green candle during downtrends, it is time to exit the position.

The stop loss can be placed behind the 55-period moving average. This is the exact middle line (in trending situations when all seven moving averages are aligned in order).

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