Heikin Ashi is a type of price chart that consists of candlesticks.
Modified Japanese candlesticks.
A Heikin Ashi chart filters market noise and provides a clearer visual representation of the trend.
For beginner traders, this means that the trend is easier to see.
For experienced traders, the Heikin Ashi charts help keep them in trending trades, while still being able to see classical chart pattern setups.
Heikin Ashi candlesticks look similar to traditional Japanese candlesticks but they are different so don’t confuse the two.
Heikin Ashi is different from traditional Japanese candlestick charts, in that it takes the prior session open and close into account for the open, which removes any gaps between candlesticks (or bars) on the chart.
|Open||Previous candle||(Open + Close)/2|
|High||Current candle||The highest point|
|Low||Current candle||The lowest point|
|Close||Current candle||(Open + High + Low + Close)/4|
|Green candlesticks with long bodies||Uptrend|
|Red candlesticks with long bodies||Downtrend|
|Small body surrounded by upper and lower shadows||Trend Pause or Trend Change|
|Green candlesticks with no lower shadows||Strong Uptrend|
|Red candlesticks with no upper shadows||Strong Downtrend|
The opportunity to flex? Telling your friends that you use “Heikin Ashi” charts sounds pretty cool.
When compared to the traditional Japanse candlestick chart, Heikin Ashi slows down the speed of the market, eliminating unnecessary false signals.
False signals and retracements are minimized giving you greater confidence in your price action analysis.
The visual representation of a “strong trend” allows you to stay in the trade without having to question yourself or make any knee jerk reactions.
Heikin Ashi has some weaknesses.
Any indicator that is based on slowing down the signals is pretty much only useful when the price is trending.
In a sideways or choppy market, Heikin Ashi will kick yo ashi.
Since Heikin Ashin smooths the price, it can be prone to being late in identifying trend reversals, which means if you’re in a trade, you’ll end up with a late signal to close it and end giving up some unrealized profits.
Heikin Ashi isn’t ideal for very short-term trading and scalping.