Heikin Ashi

Heikin Ashi “Heikin Ashi,” also known as “Heikin-Ashi” or “Heiken Ashi,” is a charting technique used to display prices that, at a glance, looks similar to a traditional Japanese candlestick chart. The difference is the method used in how candlesticks are calculated and plotted on a chart. Traditional Japanese candlesticks are great at helping you find good entry points since they display potential reversals (like a shooting star) or breakouts (like a bullish marubozu closing above a resistance level).

Applying the Heikin Ashi technique to a price chart can help you decide whether to stay in the trade or get out. Heikin Ashi charts make candlestick charts more readable for traders who want to know when to stay in a trade and ride a strong trend and when to get out when the trend weakens. Heikin Ashi is a modified candlestick charting technique that rearranges how the price is displayed so trend traders can have a higher confidence level when deciding whether to remain in a trade or exit. Some traders, usually longer-term traders, use Heikin Ashi charts as an alternative to traditional Japanese candlestick charts.

Traditional Japanese candlestick chart

Heikin Ashi chart

Candles on traditional Japanese candlestick charts frequently change from green to red (up or down), making them challenging to interpret. On the other hand, candles on the Heikin Ashi chart display more consecutive colored candles, helping traders to identify past price movements more easily. You’ll notice that Heikin Ashi charts tend for its candles to stay ????green???? and ????red???? during a downtrend. This contrasts traditional Japanese candlesticks that alternate color even if the price moves intensely in one direction.

With traditional Japanese candlestick charts, each candlestick represents the open, high, low, and close that the price makes within the current period. With Heikin Aishi candlestick charts, each candlestick doesn’t just include price movement within the current period; it also includes price information from the past.

The idea behind using a Heikin Ashi chart is that it filters market noise.

And since noise is filtered, you see the naked trend.

A Heikin Ashi chart shows a trend’s direction through its color-coded candles. A green candle is telling you that the trend is UP. A red candle is telling you that the trend is DOWN. A Heikin Ashi chart shows the trend’s strength by observing the shadows (or wicks). There is no lower shadow or wick for many of the green candles. Vice versa for the red candles. Most do not have any upper shadows or wicks. These candlesticks do not show a shadow in the opposite direction of the trend. When there is no shadow, this means you’re in a strong trend. So, the main thing you want to look for on a Heikin Ashi chart to determine trend strength is shadowless or wickless candlesticks opposite the trend.

The main drawback is that while the traditional Japanese candlesticks are derived from the actual prices, Heikin Ashi candlesticks are NOT. Because the Heikin Ashi candlesticks are averaged, they do NOT show the exact open and close prices for a particular period. The closing price is considered necessary for many traders, but the actual closing price is NOT displayed on a Heikin Ashi candlestick.

Calculate a Heikin Ashi Candlestick

Understanding Heikin Ashi Candlesticks