“Heikin Ashi” is a charting technique used to display prices that, at a glance, looks similar to a traditional Japanese candlestick chart.
The difference is the method used in how candlesticks are calculated and plotted on a chart.
They use average ranges to calculate the points of the candle, which smooths out the chart and in turn provides a clearer view of the trend of the market.
Heiken Ashi are also different from traditional Japanese candlestick charts, in that they take the prior session open and close into account for the open, which in turn removes any gaps between bars on the chart.
They are used to help filter market noise.
The Heikin Ashi chart is plotted as a candlestick chart, where the down days are represented by red bars, while the up days are represented by green bars.
How to Trade Heikin Ashi
Hollow candles represent an uptrend, with larger hollow bars indicating a stronger uptrend.
Filled candles represent a downtrend, with larger filled bars indicating a stronger downtrend.
How to Calculate Heikin Ashi
Open = (Open of previous bar+Close of previous bar)/2 High = maximum of High, Open, or Close (whichever is highest) Low = minimum of Low, Open, or Close (whichever is lowest) Close = (Open+High+Low+Close)/4