Heiken Ashi Technique

Heikin Ashi charting technique was first presented in February 2004 in the journal "Technical Analysis of Stocks & Commodities", its author is Dan Valcu. In Japanese "heikin" means "middle" or "balance", "ashi" is translated as "foot" or "bar". The candlesticks obtained using this technique differ from the familiar Japanese candlesticks.

The task of this technique - simplify the perception of the graph and smooth out irregularities in the form of gaps, powerful bullish/bearish candles, etc. (see Fig. 1).

Fig. 1. Standard candlestick chart and Heikin Ashi, EURUSD, H4.

Heikin Ashi candlesticks in their pure form can be obtained if you display the price chart as a line and make it colorless. If you display HA candlesticks together with Japanese candlesticks, the chart will become difficult to read (see Fig. 2).

Fig. 2. Heikin Ashi on one chart with classic candles.

Formula for the construction of the indicator

In the construction of the indicator the modified prices of the bar opening, maximum, minimum and closing price (Open, High, Low, Close) are used. Modified prices are calculated as follows:
- haClose = (O+H+L+C)/4;
- haOpen = (haOpen (previous bar) + haClose (previous bar))/2;
- haHigh = the maximum value of (H, haOpen, haClose);
- haLow = the minimum value of (L, haOpen, haClose);
where O, H, L, C are the prices of the current bar, respectively: opening, maximum, minimum, closing.

Features of the Heikin Ashi indicator

At Strong uptrend candlesticks often have no lower shadows. The reason will become clear if you pay attention to the formula: the opening price of the current bar on the technique Heikin Ashi (HA) becomes the minimum on this bar, as is always located in the middle of the body of the previous bar HA, and the actual minimum for this period is always located above haOpen. The opposite picture is observed on a strong downtrend.

Next feature: Heikin Ashi charts can never have gaps. The reason is again in the haOpen - this price is the middle of the body of the previous candle, also built by the technique of HA.

Candlestick models HA somewhat do not fit into the standard models, in number they are also much smaller.

Heikin Ashi technique signals

- Bullish candlesticks with large bodies and short shadows (or no shadows at all) indicate a strong bullish trend that has high chances to continue.
- Candlesticks with small bodies and large shadows are reminiscent of the classic "doji" and indicate a slowdown or a trend reversal.
- Bullish candlesticks with small shadows indicate some probability of continuation of the bullish trend.
- All of the above also applies to bearish trend.

As for using the NA technique in trading, it is not recommended to take its signals in their pure form. The most effective it is in combination with oscillators to determine the end of corrections and with trend indicators to determine the strength of the trend.