Heikin Ashi
Modified Candlesticks Indicator Chart Analysis
Heikin Ashi (sp., Heiken Ashi) provides an alternative to the numerous classifications and categories of candlesticks, candlestick patterns and their variations that many find difficult to learn and remember. Using modified candlesticks computed using the opening, high, low and closing price values of traditional candlesticks it presents a simple visual method to assist with determining trend direction and strength. Many observe a reduction of the irregularity associated with traditional candlesticks and candlestick patterns on their price charts.
By reducing classifications and categories, the number of rules and subjective expertise required using traditional candlesticks is also significantly reduced. In its most basic form only eight rules determine trend direction and strength:
Computation of Heikin Ashi
"The following tables will make better sense if the chart examples further down on this page are first examined."
Trend Intensity Bullish Trend (Price rising)
Normal Empty candlestick bodies.
Strong Empty long candlestick bodies
without lower wicks.
Weak Empty shorter candlestick bodies
without lower wicks.
Consolidation Series of small candlestick bodies
with upper and lower wicks.
Trend Intensity Bearish Trend (Price falling)
Normal Filled candlestick bodies.
Strong Filled long candlestick bodies
without upper wicks.
Weak Filled shorter candlestick bodies
without upper wicks.
Consolidation Series of small candlestick bodies
with upper and lower wicks.
From the tables above it is understood that the actual number of Heikin Ashi rules is eight, four of which are bullish and four are bearish. The only subjective analysis is the determination of small, long and shorter candlestick bodies, and wick lengths relative to the length of the candlestick bodies.
A Heiken-Ashi candlestick is not dependent upon multiple chart periods (bars or time periods) that have already elapsed as most oscillators and indicators require for their computation. When utilizing previous time periods the result of a computation by definition “lags”. Therefore the result provided by oscillators and indicators is affected by history and the impact of that lag can cause ambiguity of the price chart’s current state of affairs, making quantitative analysis more difficult. Think of more difficult as less absolute and more subjective, meaning the individual must bring more learned experience to assess a situation for which there appears no clear-cut answer. Subjectivity can also be thought of as a greater probability of introducing error in judgement.
The Heiken-Ashi (HA) candlesticks replace traditional candlesticks on a chart with those computed by its formula. This allows other chart studies of choice to be utilized that can provide additional decision analysis and technical confirmation.
Computation of Heikin Ashi (HA) Modified Candlesticks
OHLC Heikin-Ashi Computation
HaOpen (HaOpen previous bar + Close previous bar) / 2
HaHigh Highest of (High, HaOpen, HaClose)
HaLow Lowest of (Low, HaOpen, HaClose)
HaClose (Open + High + Low + Close) / 4
Comparison of Traditional Candlesticks (first chart)
to Heikin Ashi Candlesticks (second chart)
"Many boast that the Heiken Ashi candlesticks are easier to understand and provide more accurate interpretation when compared to traditional candlestick analysis."
"At the white arrow on the chart notice that the HA chart provides a bold reversal candlestick."
"Notice that the HA candlestick chart below presents the bearish Engulfing candlestick (chart above) as a bearish Spinning Top candlestick."
Two Heikin Ashi Candlestick Chart Examples (First without smoothing and second with smoothed indicator)
"The technical analysis of price consolidation patterns for HA remains identical to the analysis performed on traditional candlesticks. For example, an upward Asymmetrical Double Bottom consolidation pattern (first candlestick chart) is identified by a trend-line drawn on that Forex chart."
"The thin green line on both candlestick charts is the price line. Note that on the smoothed Heikin Ashi candlestick chart (second chart) that this green price line still identifies the upward Asymmetrical Double Bottom price consolidation pattern. Additionally, note the point where the smoothed Heikin Ashi candlesticks change color from bearish red to bullish blue. After the formation of the second bottom is the point where many prefer to open their trade positions to capitalize an excellent momentum price movement."
"There are never lower wicks on the smoothed Heiken Ashi candlesticks (below). Interpretation is based upon the candlestick body's color (bullish or bearish) the length of its real body and the length of the upper wick relative to its real body."
"Do you prefer Heiken Ashi with or without smoothing?"
Two Heikin Ashi Candlestick Charts - First price chart without smoothing, second chart is smoothed indicator
"Be sure to study the rules for interpreting bullish and bearish Heiken Ashi candlesticks (tables near top of this page) and apply the rules when examining the HA charts."
Heiken Ashi Normal and Smoothed Indicator on Same Price Chart
"As a reminder: There are never lower wicks on the smoothed Heiken Ashi candlesticks. Interpretation is based upon the candlestick body's color (bullish or bearish) the length of its real body and the length of the upper wick relative to its real body."
"Heikin Ashi smoothed candlesticks typically follow a moving average line. The examples on this web page closely follow a 20 moving average line."
"If you liked Heikin Ashi then consider reviewing Range Charts (tab on left navigation of this page). There are interesting similarities and differences."
Free Downloads:
Click Here ==> Download Metatrader Heikin Ashi Indicator
Click Here ==> Download Metatrader Heikin Ashi Smooth Indicator
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heikin ashi heiken candlesticks price traditional trend charts rules computation page first bodies lower wicks upper bullish bearish analysis length second smoothed line forex body real trading
