Heikin Ashi is a charting technique that can be used to predict future price movements. It is similar to traditional candlestick charts. However, unlike a regular candlestick chart, the Heikin Ashi chart tries to filter out some of the market noise by smoothing out strong price swings to better identify trend movements in the market.
To build Heiken Ashi, a formula is used in which price data are entered, while ordinary candles are built exclusively on bare numbers, without using any calculations.
How are candles calculated on the Heikin Ashi chart?
To calculate, Heikin Ashi uses the OCHL formula: which stands for Open, Close, High, Low. These are four components that affect the shape, size, and direction of the candles. The formula for their calculation is given below:
- Open = (Previous Open + Previous Close) / 2.
In regular candles, the open level is at the close of the previous candle (if there is no gap in the market). In Heikin Ashi, a new candlestick opens at the middle level, between the opening and closing of the previous one.
- Close = (Close + Open + High + Low) / 4.
Average value between low, high, open and close of the current candle.
- High = The highest value of a recent high, open, or close.
- Low = The lowest value of the recent low, open or close.
From time to time, some of these values will be equal, which will affect the overall appearance of the chart. The choice of the timeframe will also have a big impact on the look of the chart.
From the above formulas, it becomes clear that the current candlestick of the indicator is calculated with a delay, therefore the signals given by Heikin Ashi are of a lagging nature. In this case, the calculations of a new candle will be possible only after the next one appears on the price chart.
When trading volatile instruments on small timeframes, the indicator can help to effectively filter out market noise, false breakouts, and entry points. It is worth noting, however, that when working on a market with low volatility and/or on large timeframes, Heikin Ashi will rarely give signals. Moreover, the reliability of these signals will be low, due to the delay of the indicator itself.
How to enable Heikin Ashi
You can enable Heikin Ashi in the chart type settings:
What settings does Heikin Ashi have?
The settings for this type of chart do not differ from the settings of regular candlesticks, except for the item Show real prices on price scale (instead of Heikin Ashi price), which is responsible for displaying the label of the last price of Heiken Ashi along with the label of the last price of a regular candlestick chart.