Heiken Ashi

Notes:

These indicators and concepts are specifically designed for TradingView.com

Overview

Heiken Ashi (HA) candles are a type of charting tool used in technical analysis to smooth out price movements and better identify trends. Unlike traditional candlestick charts, which use open, high, low, and close prices to plot each candle, Heiken Ashi candles use a modified formula that takes into account the average price of the asset over a given period. The main point of Heiken Ashi candles is to filter out the noise and volatility that can be present in regular candlestick charts. The benefit of using Heiken Ashi candles is that they provide a clearer and more intuitive view of the overall trend and momentum in the market. Unlike traditional candlestick charts, which focus on individual price fluctuations, Heiken Ashi candles consider the average price movement over a specific period. This averaging process results in candles that have smoother bodies and fewer wicks, making it easier to identify trends and reversals. By eliminating the short-term price fluctuations, Heiken Ashi candles allow traders to focus on the broader market direction. This can be particularly useful for trend analysis and identifying key support and resistance levels. Additionally, these candles can help traders stay in a trend for a longer duration, as they are less prone to false signals caused by temporary price volatility.

How to Trade

Traders can use Heiken Ashi candles in a variety of ways to identify trends and potential trading opportunities. Some common strategies include:

1. Trend following: Traders can use Heiken Ashi candles to identify the direction of the trend. If the candles are mostly green, it suggests that there is a bullish trend, while mostly red candles suggest a bearish trend. Traders can then use other technical indicators, such as moving averages or trend lines, to confirm the trend and enter trades in the direction of the trend.
2. Reversals: Traders can use Heiken Ashi candles to identify potential trend reversals. For example, if the candles have been mostly green but start turning red, it suggests that the bullish momentum is starting to weaken and a reversal may be imminent. Traders can then use other technical indicators, such as oscillators or support and resistance levels, to confirm the reversal and enter trades in the opposite direction of the previous trend.
3. Stop loss placement: Traders can use Heiken Ashi candles to determine where to place their stop loss orders. Because Heiken Ashi candles are smoother than traditional candlesticks, they can help filter out some of the noise in the price movement and provide a more reliable level for stop loss placement.

How to Calculate

The formula for calculating Heiken Ashi candles is as follows:

HA Close = (Open + High + Low + Close) / 4HA Open = (HA Open (previous candle) + HA Close (previous candle)) / 2HA High = Maximum of High, HA Open, or HA CloseHA Low = Minimum of Low, HA Open, or HA Close

Here's an example of how the formula works:

Let's say that the previous Heiken Ashi candle had the following values:

HA Open = 50HA Close = 55HA High = 60HA Low = 45

The current candle would be calculated as follows:

HA Close = (50 + 55 + 60 + 45) / 4 = 52.5HA Open = (50 + 55) / 2 = 52.5HA High = Maximum of 60, 52.5, or 52.5 = 60HA Low = Minimum of 45, 52.5, or 52.5 = 45

In this example, the current Heiken Ashi candle would have a green body (indicating bullish sentiment) and a long upper wick (indicating selling pressure at the high of the candle).