Published on: April 1, 2025
The Heikin Ashi candlestick is a type of chart used by traders to spot trends and make informed trading decisions. Unlike traditional candlestick charts, which plot each candle based on the open, high, low, and close of the price within that time frame, Heikin Ashi candles use modified formulas to create a smoother and more visually representative chart of price action. This helps traders easily identify market trends and eliminate some of the noise that can obscure clear signals on a regular chart.
This smoothing effect makes Heikin Ashi charts particularly useful for identifying trends without the distraction of random price fluctuations. A series of consecutive green or red candles in Heikin Ashi often indicates a strong trend, while a mix of colours or smaller candles may signal potential reversals or indecision in the market.
We tried utilising NR7 with Heikin-Ashi, and the result has been amazing.
The Narrow Range 7 (NR7) Pattern: What Is It?
The Narrow Range 7 (NR7) pattern is a popular technical analysis tool used by traders to identify consolidation phases and potential breakout opportunities. It is characterised by a bar or candle whose range (the difference between the high and low) is smaller than the range of the previous six bars or candles. In simpler terms, the NR7 pattern occurs when the current bar is the narrowest of the last seven periods.
The significance of the NR7 pattern lies in the fact that when the market becomes “compressed” or shows a narrow range, it often signals that there is a potential for a strong move in one direction—either up or down. This contraction in price action often precedes a period of expansion, during which volatility increases and the market breaks out of its range.
NR7 on Heikin Ashi: What Does It Mean?
When you spot an NR7 pattern on a Heikin Ashi chart, it is often an indication of market exhaustion, which is a key signal that a trend may be running out of steam and is ripe for a reversal or continuation.
Heikin Ashi’s smoothing effect makes it easier to see when the market has entered a consolidation phase, which is the ideal scenario for the NR7 pattern to appear.
After identifying the NR7 pattern, the next step is to wait for the market to “choose a direction.” This could mark the start of a new bullish or bearish move, and it often provides traders with an opportunity to enter the market as the new trend begins. The key is to be patient and let the momentum follow through before making a trade.
How to Plot NR7 on Heikin Ashi Chart Using TradePoint/Zone
To make identifying the NR7 pattern on your Heikin Ashi charts even easier, you can use the built-in pattern recognition feature available in TradePoint/Zone. Here’s a simple guide on how to plot the NR7 pattern:
- Open Heikin Ashi Chart: Press Ctrl+H to switch your chart to Heikin Ashi
- Add Study: Go to the Patterns Tab
- Select NR7: From the patterns list, select NR7 and click OK.
Once you have applied this, the NR7 pattern will automatically be highlighted on your Heikin Ashi chart. This makes it super easy to spot the narrow range pattern and watch for breakout opportunities.
By using Heikin Ashi charts alongside the NR7 pattern, you cannot only identify market consolidation but also act on breakout signals with a clearer sense of timing. For a day trader or a swing trader, this combination is an effective strategy for anticipating and riding the next big trend.
