Heikin-Ashi

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
<math> \operatorname{Close} = \dfrac {Open+High+Low+Close}{4} </math>	Close equals the average price of the current bar
<math> \operatorname{Open} = \dfrac {Open (\text{previous bar}) + Close (\text{previous bar})}{2} </math>	Open equals the midpoint of the previous bar
<math> \operatorname{High} = Max (High,Open,Close) </math>	High equals the highest price of the set
<math> \operatorname{Low} = Min (Low,Open, Close) </math>	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:

Trend Detection

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

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

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.

See Also

Candlestick Chart