Heikin Ashi definition
What is Heikin Ashi?
Heikin Ashi is a type of chart pattern used in technical analysis. Heikin Ashi charts are similar to a candlestick charts, but the main difference is that a Heikin Ashi chart uses the daily price averages to show the median price movement of an asset.
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Heikin Ashi formula
The bars in a Heikin Ashi chart are calculated from an average of the open, close, high and low of previous trading sessions. Some Heikin Ashi formulas or calculations are very complicated. Here’s a simplified version of how to:
- Calculate the open = (open of previous bar + close of previous bar) divided by 2
- Calculate the close = (open + close + high + low of current bar) divided by 4
- Calculate the high = the maximum value from the high, open, or close of the current period
- Calculate the low = the minimum value from the low, open, or close of the current period
Example of Heikin Ashi
The below chart gives a visual representation of the differences between a candlestick chart and a Heikin Ashi chart. Most noticeably the Heikin Ashi appears smoother, making it a little easier to see the direction of the overall trend.
Why are Heikin Ashi charts used in trading?
Heikin Ashi charts work off average values, which results in a smooth appearance. Some traders consider Heikin Ashi charts to be a more accurate measure of an overall trend than candlestick charts.
Heikin Ashi charts are used as a form of technical analysis to look at an asset’s price movements with regard to an overall trend.
By being able to see the overall trend more clearly, a trader can make a better-informed decision about whether to enter or exit a trade.
This being said, Heikin Ashi charts can be used to the same time values as regular candlestick charts, making them useful as part of a scalping, day or position trading strategy.
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