Heikin-Ashi

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Contents

Introduction

Heikin-Ashi means "average bar" in Japanese. It is a candlestick chart. Unlike standard candlestick charts using open-high-low-close (OHLC) bars the Heikin-Ashi technique uses calculated values for the candles.

Formula

Calculation Explanation

\operatorname{Close} = \dfrac {Open+High+Low+Close}{4}
Close equals the average price of the current bar

\operatorname{Open} = \dfrac {Open (\text{previous bar}) + Close (\text{previous bar})}{2}
Open equals the midpoint of the previous bar

\operatorname{High} = Max (High,Open,Close)
High equals the highest price of the set

\operatorname{Low} = Min (Low,Open, Close) 
Low equals the lowest price of the set

Usage

Elimination of Noise

This indicator eliminates noise. So it prevents you from getting a lot of false signals. Compare the standard candlestick chart and the Heikin-Ashi chart:

Heikin-Ashi.png

Trend Detection

Blue long candles with no lower shadows indicate a strong uptrend. Look at the strong uptrend on the chart below.

Heikin-Ashi-Uptrend.png

Red long candles with no upper shadows indicate a strong downtrend. Look at the strong downtrend on the chart below.

Heikin-Ashi-Downtrend.png

Reversal candles in the Heikin-Ashi charts look like Doji candlesticks. They have no or very small bodies, but long upper and lower shadows. Look at the reversal candles on the chart below.

Heikin-Ashi-Reversal.png

See Also

Candlestick Chart

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