Heikin Ashi (HA) candlesticks is modified version of Japanese’s candlestick chart. The Japanese word Heikin Ashi means “average bar”. Heikin Ashi will help trader to remove the unwanted noise from the chart. It gives very smooth trend and the strength of the trend. Heikin Ashi also has data points similar to candlestick’s Open, High, Low and Close (OHLC) however the data will be modified based on HA formula. Candlestick chart is subjectivity chart, the understanding of the chart is purely based on viewer’s interpretation based on their skills.
The HA open is average of previous day’s open and close.
The HA close is average of open, high, low and close.
The HA high is maximum value of high, open or close.
The HA low is minimum value of low, open or close.
HA Delta is difference between HA Close & HA Open.
HA Open = (Previous day’s open + Previous day’s close)/2
HA Close = (Open + High + Low + Close)/4
HA High = max(High + HA Open + HA Close)
HA Low = min(Low + HA Open + HA Close)
HA Delta = HA Close – HA Open
Heikin Ashi’s open price will always start from mid of previous day’s candle body. Because of this, Heikin Ashi candlechart will not have candlestick’s patterns like Bearish Engulfing, Bullish Engulfing, Gap up, Gap down etc. Because of this, HA chart will reduce lot of such noise. The trend can be easily identified for naked eyes. It doesn’t require to remember so much of pattern as it exists with candlestick charts.
If you look at the below charts, the first one is last six month candlestick chart for AXIS Bank. The next one is AXIS Bank’s Heikin Ashi chart for the same period. The Heikin Ashi chart will have all the up and down trends without clear green or red color candle body, where the candlestick will have mixed of green and red color candle body.
AXIS Bank’s Candlestick chart
AXIS Bank’s Heikin Ashi chart
During the strong up trend Heikin Ashi will form set of big green color candles with no lower shadow. Same way during strong down trend Heikin Ashi will form big red color candles with no upper shadow. One can easily ride the profit with our any worry of short term zig-zags. When the trend elapse or loose its strength, HA will start forming doji or very thin candle body with both upper and lower shadows.