What are Heikin Ashi Candles?

The word Heikin Ashi means "average bar." These candles use the concept of averaging to smooth out price action and provide a better understanding of the market trend.

How Heikin Ashi Candles are Calculated

Heikin Ashi candles rely on two specific averaging techniques to create a cleaner picture of the market:

  • The Close: This is calculated by adding the open, high, low, and close of the current candle and then dividing the total by four.
  • The Open: This is set at the midpoint of the previous candle's body.

The Advantages of Heikin Ashi

Using these averaging techniques results in a clearer view of price action compared to regular candlesticks. The differences are notable:

Regular Candlesticks

On a standard chart, candles often appear mixed. You will frequently see red and green candles alternating, which can make the trend look noisy or cluttered.

Heikin Ashi Candles

On a Heikin Ashi chart, the price action is much cleaner. The benefits include:

  • Upward Moves: Characterized mostly by green candles.
  • Downward Moves: Characterized mostly by red candles.

The primary advantage of using Heikin Ashi candles is this ability to filter out market noise, making it easier for traders to identify and follow the prevailing trend.

Detailed Summary

Heikin Ashi, which translates to "average bar," is a specialized charting technique used to smooth out price action and provide a clearer view of market trends. Unlike standard candlesticks, Heikin Ashi candles use specific averaging formulas for their Open and Close values to filter out market noise. This results in a more consistent visual representation where green candles dominate uptrends and red candles dominate downtrends, helping traders identify and follow prevailing market directions more easily.

Key Takeaways

  • Definition: The term Heikin Ashi means "average bar" in Japanese.
  • Calculation Method: The candle Close is the average of the current period's open, high, low, and close, while the Open is the midpoint of the previous candle's body.
  • Trend Smoothing: These candles reduce market "noise" by using averaging, whereas regular candlesticks often show alternating colors that can obscure the trend.
  • Visual Clarity: Upward movements are characterized primarily by green candles, and downward movements are characterized by red candles.
  • Primary Advantage: The technique makes it significantly easier for traders to identify and stay within a prevailing market trend.