Heikin Ashi charts are similar to traditional candlestick charts, but they use a modified formula to calculate each candlestick’s open, close, high, and low prices. They were developed in Japan by Dan Valcu who was looking for a way to filter out market noise.
What Are Heikin Ashi Charts
Heikin Ashi charts are commonly used to smooth out market noise and provide clearer easier to read signals.
Unlike traditional candlestick charts, which show the open and close prices as separate points on the candlestick, Heikin Ashi charts use a modified calculation to plot the midpoint of the price range. This can result in more visually appealing charts, with less noise and fewer false signals.
Heikin Ashi Calculation Formula
- Open: (Open (previous candle) + Close (previous candle))/2
- Close: (Open + Low + Close + High)/4
- High: Maximum of High, Open, or Close
- Low: Minimum of High, Open, or Close
How To Use Heikin Ashi Charts
Trading Heikin Ashi Charts is relatively simple they are color-coded to indicate the direction of the trend. Green candles indicate a bullish trend, while red candles indicate a bearish trend. This can work well for entering or exiting trades and filtering out choppy price action to help you see the overall direction of the price.
You can also use candle stick patterns with Heikin Ashi Charts, here is how you can interrupt some of these patterns.
- Doji: A doji is a candlestick pattern where the open and close prices are very close together. This pattern can indicate indecision in the market and may signal a potential trend reversal.
- Hammer: A hammer is a candlestick pattern with a small body and a long lower shadow. This pattern can indicate that buyers are stepping in and may signal a potential trend reversal.
- Shooting star: A shooting star is a candlestick pattern with a small body and a long upper shadow. This pattern can indicate that sellers are stepping in and may signal a potential trend reversal.
- Bullish engulfing pattern: A bullish engulfing pattern is a candlestick pattern where a small red or black candlestick is followed by a larger green or white candlestick. This pattern can indicate a potential trend reversal from bearish to bullish.
- Bearish engulfing pattern: A bearish engulfing pattern is a candlestick pattern where a small green or white candlestick is followed by a larger red or black candlestick. This pattern can indicate a potential trend reversal from bullish to bearish.
Advantages of Heikin Ashi Charts
Here are some of the key benefits and advantages of Heikin Ashi Charts over traditional candlestick charts.
- Less noise and an overall smoother chart
- Easier to identify and spot trend Changes
- More visually appealing and easier to read
Heikin Ashi charts can help you from making irrational decisions and help you focus more on the overall trend and less on the small movements of the price.