Heikin-Ashi Charts

Heikin Ashi charts are a variation on standard Japanese candlestick charts. Heikin means “average” and Ashi means “pace”.

Heikin-Ashi charts combine candles over a couple of periods (days or weeks for our purposes) to produce a “combo” candlestick. In so doing, it essentially averages the price action over a couple of periods in one candlestick, which manages to cut out a lot of the noise that you get using one candle a day. The turning signals, the buy and sell signals, become less frequent but more meaningful. The formulas are at the bottom of the article.

Let’s give you a quick example. Here are a couple of normal one-day candlestick charts – the first one is Macquarie Group – MQG.

This is the ASX 200.

And here are the same charts using Heikin-Ashi candles, and marked on the chart are Heikin-Ashi reversal signals, the points at which you are supposed to buy (green) and sell (red).

You can see the perceived benefit of the Heikin-Ashi presentation, there is less ‘noise’ on the chart and the turning points are clearer and less confused.

Heikin-Ashi candles have more significance than normal candles because they “fill in the gaps”, so a change in candle colour implies a more significant change in trend than the daily chopping and changing.

Although using Heikin-Ashi candles, you will react later (at least a day later). Work it out and it’s a bit like using a two-period moving average and presenting it as a candle rather than a line.

But don’t let the maths get in the way of a nice picture.

Perhaps a good approach is to work off normal candlestick charts, and when you are about to buy or sell on a reversal in trend, switch the chart (as you can on most software) to a Heikin-Ashi chart to see if that chart has turned as well. If it has, it confirms your thinking and reinforces the decision to trade. If not, then you are buying or selling a bit early, taking more risk and dealing with a less significant change in trend. In other words, use Heikin Ashi charts as a confirmation of a signal. If you use it as the only signal, you will be trading a day (or week) later at least. Some of you may be happy with this slower motion trading but the rest of you might just stick to normal charts and use Heikin-Ashi as a check.

Heikin-Ashi candles represent the same candlestick messages as normal candlesticks. This is probably overkill for most Members but, for instance, a Doji or Spinning Top candle formation (there are millions of them) still indicates hesitation and indecision before a change in trend, whether you are using straight candlestick charts or Heikin Ashi charts.

And a few more patterns!

So how do you find Heikin-Ashi charts? Most Marcus Today Members use a charting package of some sort – TradingView has become very popular. You may find some free charting packages with a Heikin-Ashi function, although it is unlikely to also plot the buy and sell signals. Some people use the ASX charting function or the Yahoo Finance website (type a stock code in the top left-hand box), but neither appears to have Heikin-Ashi chart options. If you’ve found a better option that you like, let us know!

Member email (Thank you):  Incredible Charts has Heikin-Ashi charting. I’ve being using Incredible Charts for years – I like the UI. Can be as complex or simple as you choose. It’s better on Windows than on a Mac (where you need to use a browser), so I use Parallels on my MacBook to simulate Windows.

The Heikin-Ashi formulas:

1. The Heikin-Ashi Close is simply an average of the open, high, low and close for the current period.

HA-Close = (Open(0) + High(0) + Low(0) + Close(0)) / 4

2. The Heikin-Ashi Open is the average of the prior Heikin-Ashi candlestick open plus the close of the prior Heikin-Ashi candlestick.

HA-Open = (HA-Open(-1) + HA-Close(-1)) / 2

3. The Heikin-Ashi High is the maximum of three data points: the current period’s high, the current Heikin-Ashi candlestick open or the current Heikin-Ashi candlestick close.

HA-High = Maximum of the High(0), HA-Open(0) or HA-Close(0)

4. The Heikin-Ashi low is the minimum of three data points: the current period’s low, the current Heikin-Ashi candlestick open or the current Heikin-Ashi candlestick close.

HA-Low = Minimum of the Low(0), HA-Open(0) or HA-Close(0)