There’s one main difference between traditional candlestick charts and Heikin Ashi charts. Heikin Ashi charts the average price moves, creating a smoother appearance. Because the Heikin Ashi price bars are averaged, they don’t show the exact open and close prices for a particular time period. Some traders want additional confirmation of trend direction. HA charts are often used as a technical indicator on a typical candlestick chart. They can help highlight and clarify the current trend. Heikin Ashi charts sometimes are used on their own, especially by swing traders or investors. Day traders tend to use Heikin Ashi charts more as an indicator. That’s because these charts have certain other benefits.
The Heikin Ashi Calculation
Heikin Ashi charts smooth price activity by calculating average values. An HA chart calculates its own open (HAO), high (HAH), low (HAL), and close (HAC). It uses the actual open (O), high (H), low (L), and close (C) of the time frame (e.g., one minute, five minutes, 15 minutes).
Calculation:HAO = (Open of previous bar + Close of previous bar) / 2HAC = (Open + High + Low + Close) / 4HAH = Highest of High, Open, or CloseHAL = Lowest of Low, Open, or Close
A formula is used for calculating each price bar on a Heikin Ashi chart. Because of this, you don’t know the exact price at which a given time period opened or closed. When day trading, this can be an issue, because knowing the exact price, especially when you’re trading off a chart, is important. For longer-term traders, this is less of an issue; the open and close of a price bar is not as important in trades that last weeks, months, or years.
Advantages of Heikin Ashi
While Heikin Ashi won’t show the exact price all the time, there are benefits to using these charts. The main advantage is that they look much “smoother,” which helps to identify the trending direction more easily. Heikin Ashi Charts are also color-coded, like candlesticks. As long as the price is rising (based on the calculations), then the bars will show up as green (or another color of your choosing). As long as the price is falling (based on the calculation), then the bars will show up as red (or another color of your choosing). Candlestick charts may flip-flop constantly from a green bar to a red bar to a green bar, but Heikin Ashi charts tend to have longer stretches of green and red bars. This provides clearer highlighting and confirmation of current trends.
Using the Heikin Ashi Charts
Heikin Ashi charts can be used in the same fashion as any other chart, for finding chart patterns like triangles and wedges, or trade setups. Entry and exit points may vary slightly, compared to using a candlestick chart, since the price on an HA chart may be slightly different from what is on the candlestick chart. Test your strategies first to see whether they work well on Heikin Ashi charts before opting to use them when real money is on the line.
The Bottom Line
One chart type isn’t necessarily better than another. Rather, some traders like Heikin Ashi charts because they help isolate the trend better and aren’t as choppy to look at, while others like the additional detail and precise pricing of standard candlestick or bar charts.
