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 * Technical Analysis
 * Technical Analysis Basic Education


HEIKIN-ASHI TECHNIQUE DEFINITION AND FORMULA


By
Cory Mitchell

Full Bio
 * 
 * 

Cory Mitchell, CMT is the founder of TradeThatSwing.com. He has been a
professional day and swing trader since 2005. Cory is an expert on stock, forex
and futures price action trading strategies.
Learn about our editorial policies
Updated April 30, 2024
Reviewed by
Khadija Khartit
Reviewed by Khadija Khartit
Full Bio
 * 
 * 

Khadija Khartit is a strategy, investment, and funding expert, and an educator
of fintech and strategic finance in top universities. She has been an investor,
entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63,
and 66 license holder.
Learn about our Financial Review Board


WHAT IS THE HEIKIN-ASHI TECHNIQUE?

The Heikin-Ashi technique averages price data to create a Japanese candlestick
chart that filters out market noise. 



Heikin-Ashi charts, developed by Munehisa Homma in the 1700s, share some
characteristics with standard candlestick charts but differ based on the values
used to create each candle. Instead of using the open, high, low, and close like
standard candlestick charts, the Heikin-Ashi technique uses a modified formula
based on two-period averages. This gives the chart a smoother appearance, making
it easier to spots trends and reversals, but also obscures gaps and some price
data.




KEY TAKEAWAYS

 * Heikin-Ashi is a candlestick pattern technique that aims to reduce some of
   the market noise, creating a chart that highlights trend direction better
   than typical candlestick charts.
 * The downside to Heikin-Ashi is that some price data is lost with averaging,
   which could affect risk.
 * Long down candles with little upper shadow represent strong selling pressure,
   while long up candles with small or no lower shadows signal strong buying
   pressure.


THE FORMULA FOR THE HEIKIN-ASHI TECHNIQUE IS:

Heikin-Ashi Close=Open0+High0+Low0+Close04Heikin-Ashi Open=HA Open−1+HA Close−12Heikin-Ashi High=Max (High0,HA Open0,HA Close0)Heikin-Ashi Low=Min (Low0,HA Open0,HA Close0)where:Open0 etc.=Values from the current periodOpen−1 etc.=Values from the prior periodHA=Heikin-Ashi\begin{aligned}
&\text{Heikin-Ashi Close} = \frac{ \text{Open}_0 + \text{High}_0 + \text{Low}_0
+ \text{Close}_0 }{ 4 } \\ &\text{Heikin-Ashi Open} = \frac{ \text{HA Open}_{-1}
+ \text{HA Close}_{-1} }{ 2 } \\ &\text{Heikin-Ashi High} = \text{Max } (
\text{High}_0, \text{HA Open}_0, \text{HA Close}_0 ) \\ &\text{Heikin-Ashi Low}
= \text{Min } ( \text{Low}_0, \text{HA Open}_0, \text{HA Close}_0 ) \\
&\textbf{where:} \\ &\text{Open}_0 \text{ etc.} = \text{Values from the current
period} \\ &\text{Open}_{-1} \text{ etc.} = \text{Values from the prior period}
\\ &\text{HA} = \text{Heikin-Ashi} \\ \end{aligned} Heikin-Ashi Close=4Open0
+High0 +Low0 +Close0 Heikin-Ashi Open=2HA Open−1 +HA Close−1
Heikin-Ashi High=Max (High0 ,HA Open0 ,HA Close0 )Heikin-Ashi Low=Min (Low0
,HA Open0 ,HA Close0 )where:Open0  etc.=Values from the current periodOpen−1
 etc.=Values from the prior periodHA=Heikin-Ashi 




HOW TO CALCULATE HEIKIN-ASHI

 1. Use one period to create the first Heikin-Ashi (HA) candle, using the
    formulas. For example, use the high, low, open, and close to create the
    first HA close price. Use the open and close to create the first HA open.
    The high of the period will be the first HA high, and the low will be the
    first HA low.
 2. With the first HA calculated, it is now possible to continue computing the
    HA candles per the formulas.
 3. To calculate the next close, use the open, high, low, and close from that
    period.
 4. To calculate the next open, use the prior open and prior close.
 5. To calculate the next high, choose the max of the current period's high, or
    the current period's HA open or close.
 6. To calculate the next low, choose the max of the current period's low, or
    the current period's HA open or close.
 7. For steps five and six remember that the HA open and close are not the same
    as the period's open and close. The HA open and close were calculated in
    steps three and four.




Image by Sabrina Jiang © Investopedia 2021


WHAT DOES HEIKIN-ASHI TELL YOU?

The Heikin-Ashi technique is used by technical traders to identify a given trend
more easily. Hollow white (or green) candles with no lower shadows are used to
signal a strong uptrend, while filled black (or red) candles with no upper
shadow are used to identify a strong downtrend.



Reversal candlesticks using the Heikin-Ashi technique are similar to traditional
candlestick reversal patterns; they have small bodies and long upper and lower
shadows. There are no gaps on a Heikin-Ashi chart as the current candle is
calculated using information from the previous candle.



Because the Heikin-Ashi technique smooths price information over two periods, it
makes trends, price patterns, and reversal points easier to spot. Candles on a
traditional candlestick chart frequently change from up to down, which can make
them difficult to interpret. Heikin-Ashi charts typically have more consecutive
colored candles, helping traders to identify past price movements easily.



The Heikin-Ashi technique reduces false trading signals in sideways and choppy
markets to help traders avoid placing trades during these times. For example,
instead of getting two false reversal candles before a trend commences, a trader
who uses the Heikin-Ashi technique is likely only to receive the valid signal.




HEIKIN-ASHI VS. RENKO CHARTS

Heikin-Ashi charts are constructed based on averages over two periods. Renko
charts, on the other hand, are created by only showing movements of a certain
size.



While a Renko chart has a time axis, the boxes or bricks are not governed by
time, only by movement. While a new HA candle will form every period, a Renko
chart will only produce a new brick/box when the price has moved a certain
amount.



Heikin-Ashi.

Image by Sabrina Jiang © Investopedia 2020


LIMITATIONS OF THE HEIKIN-ASHI TECHNIQUE

Since the Heikin-Ashi technique uses price information from two periods, a trade
setup takes longer to develop. Usually, this is not an issue for swing traders
who have time to let their trades play out. However, day traders who need to
exploit quick price moves may find Heikin-Ashi charts are not responsive enough
to be useful.



The averaged data also obscures important price information. Daily closing
prices are considered important by many traders, yet the actual daily closing
price is not seen on a Heikin-Ashi chart. The trader only sees the averaged HA
closing value. In order to control risk, it is important the trader is aware of
the actual price, and not just the HA averaged values.



Another important element in technical analysis that is missing from Heikin-Ashi
charts is price gaps. Many traders use gaps for analyzing price momentum,
setting stop-loss levels, or triggering entries.




EXAMPLE USING HEIKIN-ASHI CANDLESTICKS

Hieken-Ashi charts can be applied to any market and most charting platforms now
have them included as a functionality.  There are five primary signals that
identify trends and buying opportunities:


 1. Hollow or green candles with no lower "shadows" indicate a strong uptrend:
    Let your profits ride!
 2. Hollow or green candles signify an uptrend: You might want to add to
    your long position and exit short positions.
 3. Candles with a small body surrounded by upper and lower shadows indicate a
    trend change: Risk-loving traders might buy or sell here, while others will
    wait for confirmation before going long or short.
 4. Filled or red candles indicate a downtrend: You might want to add to your
    short position and exit long positions.
 5. Filled or red candles with no higher shadows identify a strong downtrend:
    Stay short until there's a change in trend.



These signals may make locating trends or trading opportunities easier than with
traditional candlesticks. The trends are not interrupted by false signals as
often and are thus more easily spotted. 



Heikin-Ashi.

Image by Sabrina Jiang © Investopedia 2020

The chart example above shows how Heikin-Ashi charts can be used for analysis
and making trading decisions. On the left, there are long red candles, and at
the start of the decline, the lower wicks are quite small. As the price
continues to drop, the lower wicks get longer, indicating that the price dropped
but then was pushed back up. Buying pressure is starting to build. This is
followed by a strong move to the upside. 



The upward move is strong and doesn't give major indications of a reversal,
until there are several small candles in a row, with shadows on either side.
This shows indecision. Traders can look at the bigger picture to help determine
whether they should go long or short. 



The charts can also be used to keep a trader in a trade once a trend begins.
It's usually best to stay in a trade until the Heikin-Ashi candles change color.
However, a change of color doesn't always mean the end of a trend—it could just
be a pause.



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