Understanding Heikin Ashi chart
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Definition of HEIKIN ASHI
Heikin Ashi (which translates from Japanese to "medium bar") is a graphical representation developed by a Japanese trader (Yasuiji Yamanaka).
A Heikin Ashi representation enables traders to get a better view of the intensity of trends, while removing the small irregularities of Japanese candlesticks.
The construction of a Heikin Ashi (HA) chart is based on the 4 variables of Japanese candlesticks: highest, lowest, opening and closing points. The difference between Heikin Ashi and Japanese candlesticks comes from the calculation method.
Heikin Ashi calculation formula
- Heikin Ashi closing (HA closing) = (opening + highest + lowest + closing) / 4.
The closing price of a Heikin Ashi is the average of the 4 variables of a traditional Japanese candlestick.
- Heikin Ashi opening (HA opening) = (HA opening of the previous bar + HA closing of the previous bar) / 2.
The opening price of a Heikin Ashi is the average (or mid-point) of the opening and closing prices of the previous Heikin Ashi.
- Heikin Ashi high: HA high = maximum of (High, HA opening, HA closing).
- Heikin Ashi low: HA low = minimum (Low, HA opening, HA closing)
Comparison of Heikin Ashi and Japanese candlesticks
Signals given by a Heikin Ashi chart
A Heikin Ashi chart gives traders five different signals:
- A green Heikin Ashi indicates a bullish trend.
- A green Heikin Ashi without a low wick indicates a strong bullish trend.
- A small-bodied Heikin Ashi with high and low wicks indicates a trend reversal.
- A red Heikin Ashi indicates a bearish trend.
- A red Heikin Ashi without a high wick indicates a strong bearish trend.
Use of a Heikin Ashi chart
On these charts, we can see that the Heikin Ashi representation enables traders to determine the current trend better, and so obtain "healthier" movements with fewer false signals.
Heikin Ashi Chart
Japanese candlestick chart
