Heikin Ashi

A Heikin Ashi chart looks like a normal candlestick chart, but its candles do not show the real open and close. Each candle mixes the prices of the current period with the previous Heikin Ashi candle.

Because of that averaging, a single period against the trend rarely changes the color. Traders use the chart to see the direction and the strength of a trend at a glance. On Charts, Heikin Ashi is one of the chart types.

The first candle of the series has no previous one, so its open is usually taken as (open + close) / 2 of the first period.

• Close = (open + high + low + close) / 4 – the average price of the current period.
• Open = (previous Heikin Ashi open + previous Heikin Ashi close) / 2 – the midpoint of the previous Heikin Ashi body.
• High = the highest of the period high, the Heikin Ashi open and the Heikin Ashi close.
• Low = the lowest of the period low, the Heikin Ashi open and the Heikin Ashi close.

• Rising candles with no lower wick – a strong uptrend. Every candle opens inside the previous body and price does not go below it.
• Falling candles with no upper wick – a strong downtrend.
• Small bodies with wicks on both sides – a pause. The trend is losing speed or the market is turning.
• A change of color after a long run – the first sign that the trend may be changing. Traders usually wait for a second candle of the new color.

• Prices – a regular candle shows the real open, high, low and close. A Heikin Ashi candle shows calculated values, and its open and close are not prices at which the market traded.
• Gaps – regular charts show gaps between periods. Heikin Ashi candles always open inside the previous body, so gaps are not visible.
• Noise – Heikin Ashi hides small pullbacks. That makes a trend easier to hold and precise levels harder to see.
• Patterns – classic candlestick patterns are defined on regular candles and should be read on a regular candlestick chart.

Place orders by real prices. The last Heikin Ashi close is an average and can differ from the current market price.

• Direction – trade with the color of the higher timeframe: longs while candles are rising, shorts while they are falling.
• Entry – after a pause of small-bodied candles, when a candle of the trend color with no wick on the opposite side appears.
• Stop – beyond the last swing on the regular chart. Use real prices for the stop, not Heikin Ashi values.
• Exit – when candles change color, or when wicks start to appear on the side that was clean during the trend.

• Taking the Heikin Ashi close for the market price – entries, stops and targets must be set from real prices.
• Backtesting on Heikin Ashi candles – a test that fills orders at averaged prices shows results that could not be traded.
• Using it for precise levels – support and resistance should be marked from real highs and lows.
• Expecting early signals – averaging adds lag, and the color changes after the turn, not at it.