Forex

Heikin Ashi Indicator

Hi there!

Yes! Raymond Toh again is your pilot today!

We are going to study the Heikin Ashi Candlesticks (it’s not a wine’s name, it’s a kind of candlesticks created by Dan Valcu) and will know why are they good and how to benefit from them in our trading!

What Heikin Ashi Candlesticks are?

In the previous article we talked about the Moving Average Indicators and we said “Where’s a trend where’s the Moving Average” which means the Moving Average indicators work better in the trend market and they act bad in the time of fluctuations of the market.

We are not far from the Average and Trend terms; The Heikin in the Japanese means “average” and Ashi mean bar, So the translation of Heikin Ashi is “Average Bar”. And you’ll know soon how much they are useful for Trends.

Heikin Ashi (Average Bar) is a technique invented by Dan Valcu (some people say it was invented by Yasuji Yamanaka) as a method of plotting the Japanese candlesticks, the technique aimed to display the trends more clearly and put aside the noise and choppiness.

This is the formula the technique use to modify the normal candlesticks:

xClose = (Open+High+Low+Close)/4
The average price of the current bar

xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2
The midpoint of the previous bar

xHigh = Max(High, xOpen, xClose)
The highest value in the set

xLow = Min(Low, xOpen, xClose)
The lowest value in the set

With this above formula the Heikin Ashi chart will look like this (Figure 1 the normal candlesticks chart - Figure 2 the Heikin Ashi chart)

Normal candlesticks

Heikin Ashi candlesticks

Note: Attached the Heikin Ashi MQ4 indicator (MetaQuotes version), for better view as showed in figure 2 MetaQuotes recommend next chart settings:
press F8 or select on menu ‘Charts’->’Properties…On ‘Color’ Tab select ‘Black’ for ‘Line Graph’ - On ‘Common’ Tab disable ‘Chart on Foreground’ checkbox and select ‘Line Chart’ radio button

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