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Heiken - Ashi

Example of the parts of a candlestick price chart.

A candlestick is a type of price chart used that displays the high, low, open, and closing prices of a security for a specific period. It originated from Japanese rice merchants and traders to track market prices and daily momentum, hundreds of years before becoming popularized in the United States.The wide part of the candlestick is called the "real body" and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher).The candlestick's shadows show the day's high and low and how they compare to the open and close. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices. Candlesticks reflect the impact of investor sentiment on security prices and are used by technical analysts to determine when to enter and exit trades.

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The Heiken-Ashi technique averages price data to create a Japanese candlestick chart that filters out market noise. Heiken-Ashi charts (also known as Heikin-Ashi), 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 Heiken-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. Heiken-Ashi itself means ''average bar'' in Japanese.

What-is-Heikin-Ashi-Candlesticks

An untrained eye might not even recognize that this is not a standard Japanese Candlestick chart. As you can see, each Heiken Ashi candle has a body, and an upper and lower candlewick (shadow) – the same as with the Japanese candlesticks. However, if you take a closer look you will notice that each of the Heiken Ashi bars start from the middle of the bar before it, and not from the level where the previous candle has closed. This is a major distinguishing factor between the two charting styles.

Each Heiken Ashi candle has an open, close, high and low. Therefore, there are four segments of the Heiken Ashi formula:

The opening level of the Heiken Ashi candle equals the midpoint of the previous candle. If you refer to the chart example above, it is clear that every new candle starts from the middle of the previous one.

Open = [Open (previous bar) + Close (previous bar)]/2

The close of each Heiken Ashi bar equals to the average level between the four parameters – open, close, high, and low:

Close = (Open+High+Low+Close)/4

The highest point of a Heiken Ashi candle takes the actual high of the period. This could be the highest shadow, the open, or the close.

High = Max Price Reached

The lowest point of a Heiken Ashi candle takes the actual low of the period. This could be the lowest shadow, the open, or the close.

Low = Min Price Reached

Japanese-Candlesticks-Vs.-Heiken-Ashi-Candles

On the left side you see a chart composed of Japanese Candles. On the right side we have a chart made up of Heiken Ashi candles. The charts look pretty similar, however, the Heiken Ashi chart is smoother. Referring to the coloured circles on the chart you see the main differences between the two charts. Notice that the Heiken Ashi chart isolates some of the noisy price action.

The Heiken-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 Heiken-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 Heiken-Ashi chart as the current candle is calculated using information from the previous candle.

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Because the Heiken-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. Heiken-Ashi charts typically have more consecutive coloured candles, helping traders to identify past price movements easily. The Heiken-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 Heiken-Ashi technique is likely only to receive the valid signal. 

Key takeaways   The averaged open and close help filter some of the market noise, creating a chart that tends to highlight the trend direction better than typical candlestick charts. The downside is that some price data is lost with averaging. The most recent price (close) may not reflect the actual price of the asset, which could affect risk. Long down candles with little upper shadow represent strong selling pressure. Long up candles with small or no lower shadows signal strong buying pressure.

The difference between Heiken-Ashi and Renko charts  Heiken-Ashi charts are constructed based on averages over two periods. Renko charts 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 chart showing potential trading signals

 

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It did, and I found it interesting, but to be honest I need to go back and review it again. This stuff is seriously outside my ‘comfort zone’.

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See, it's not all tortoise shells and voodoo ... 

Check out Fibonacci too

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We fired a guy in Luanda because he was constantly trading at his desk instead of doing what he was supposed to be doing (well that and he was an asshole). I used to watch him. He had a laptop running all the time and things would blink red or green, he’d make a trade, and keep watching it like a hawk.

Seems to me that if you’re a trader or into FX that you’d have to watch it continually in order to make money at the margins, which is what got this guy run off.

Are you handcuffed to a laptop or do you set up algorithms which do this automatically?

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DayTrader

(edited)

Nah I don't use algos. It makes sense to watch like a hawk sometimes, depends what kinda timescales you're trading. I rarely have positions open longer than a day, which is very short term, compared to normal traders and especially investors, but I don't sit there watching all day. However, if you're swing trading, and literally catching little peaks and troughs through the day, going long then short then long etc, it makes a lot more sense to watch all day if no algos used. Some traders may make 100 trades a day like this and every position is a couple of minutes. That's nuts to me, algo or not lol.

But if you're ever watching like a hawk out of fear you shouldn't be in there, that's how I see it. Majority of it is your timescale and when you're happy to take profit. (#FearandGreed). Personally I have positions that are anything from half an hour (hawk lol) to 2 days potentially (check progress now and again and keep checking indicators and news). 

Edited by DayTrader

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Makes sense and I find it very interesting, something I’ve always been curious about but would likely never attempt as I am fairly conservative and risk adverse.

I have a personal banker in Singapore (good looking, young Chinese lady) who I’ve been with for years. She is very, very astute and we’ve become friends as well over the years.

Serious banking has alot of twists and turns that us commoners are rarely aware of and I seem to learn something from her every week! I transferred some funds last week and she told me, and gave me the exact terminology, to ask for some charges to be waived...and they waived them! Us commoners would never have been aware that these charges could be waived!

To me, this is alot like what you do. If you are not very ‘clued up’ in your line of work you should probably not get into it!

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Yeah you kinda learn as you go and pick more and more up, like many careers I guess. One day you realise things kinda click and how much you've learnt. That's how it was for me. Practiced on play money account, a simulation of the actual markets and results but not real money, for like a year on and off while playing poker as job, slowly learnt a lot when doing it everyday.

Did it for real and slowly went from there, real small at first obviously, then one year I realised how much more I had made compared to poker, and it obviously cut into poker time anyway. Then I bought a tortoise and there was no stopping me, and poker became fun again. 

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