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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