Heikin-Ashi / Heikin-Ashi Smoothed
Last updated
Last updated
Heikin-Ashi is a type of candlestick chart that helps traders see trends more clearly by filtering out some of the market noise. Unlike regular candlestick charts, Heikin-Ashi uses modified price data to create smoother and more consistent patterns. This makes it easier to identify the direction of the trend and spot potential reversals.
Traders use Heikin-Ashi to get a better view of the market trend. The smoother appearance helps reduce the number of false signals, making it easier to stay in a trend longer and avoid getting caught in sideways movements. This clarity can improve decision-making and help traders manage their trades more effectively.
Heikin-Ashi calculates each candle based on the average price of the current and previous periods. This results in candles that look different from regular candlesticks. The formula for Heikin-Ashi candles is simple:
Close: the average price of the current bar.
Open: the average of the previous Heikin-Ashi candle’s open and close.
High: the highest price from the current period.
Low: the lowest price from the current period.
These calculations smooth out the price action, making the trend easier to see.
When looking at Heikin-Ashi charts, pay attention to the color and shape of the candles:
Green Candles. Indicate an uptrend. The price is generally rising, and the candles are mostly green with few wicks.
Red Candles. Indicate a downtrend. The price is generally falling, and the candles are mostly red with few wicks.
Doji Candles. These candles have small bodies and long wicks, suggesting a potential reversal or indecision in the market.
The smoother appearance helps you stay aligned with the trend and spot changes early.
Heikin-Ashi can be used in several ways to enhance your trading strategy:
Trend Identification. Use the color of the candles to determine the trend direction. Green candles suggest a strong uptrend, while red candles indicate a strong downtrend.
Entry and Exit Points. Look for changes in candle color as signals to enter or exit trades. For example, a switch from green to red candles may suggest it’s time to sell.
Heikin-Ashi smoothed is a variation that applies an additional averaging component to further filter out price fluctuations. It retains the same formula but uses longer-term averages to create even smoother candles. This approach can reduce whipsaws, making it easier to stay focused on the broader market direction and ignore short-term noise.
Objective: Use the Heikin-Ashi indicator to identify trends and make trading decisions on a real asset.
Scenario: Trading GBP/USD on a 4-Hour Chart
Set Up the Indicator:
Open your trading platform and select the 4-hour chart for the GBP/USD currency pair.
Add the Heikin-Ashi indicator to your chart. Most platforms have this option under candlestick settings.
Identify the Trend:
Look at the color of the Heikin-Ashi candles.
If the candles are mostly green, the market is in an uptrend.
If the candles are mostly red, the market is in a downtrend.
Find Entry Points:
Enter a long position when you see a series of green candles, indicating a strong uptrend.
Enter a short position when you see a series of red candles, indicating a strong downtrend.
Spot Reversals:
Watch for changes in candle color. A shift from green to red may signal the end of an uptrend.
A shift from red to green may indicate the end of a downtrend.
Review Your Trades:
Keep track of your buy and sell decisions based on Heikin-Ashi signals.
Note how often these signals lead to successful trades and adjust your strategy if needed.
The hardest part of this lesson it to remember the name of this indicator.
Confirming Other Indicators. Combine Heikin-Ashi with other tools like or the to confirm your trade signals and improve accuracy.
