Calculation Formula #
Normal Candlestick Charts are composed of a series of open-high-low-close (OHLC) candles set apart by a time series.
The Heikin-Ashi technique shares some characteristics with standard candlestick charts but uses a modified formula of close-open-high-low (COHL):
Close = (Open + High + Low + Close)/4. Open = (Open of previous bar + Close of previous bar)/2. High = the maximum value from the High, Open, or Close of the current period. Low = the minimum value from the Low, Open, or Close of the current period.
It is obvious that before you can calculate the future Heikin-Ashi candlesticks, you need to have your first Heikin-Ashi candlestick. Therefore, the first calculation simply uses data from the current open, high, low, and close.
The first Heikin-Ashi close equals the average of the open, high, low, and close ((O+H+L+C)/4).
The first Heikin-Ashi open equals the average of the open and close ((O+C)/2).
The first Heikin-Ashi high equals the high and the first Heikin-Ashi low equals the low.
Explanation #
Heikin-Ashi Candlesticks are very similar to normal candlesticks, but differ in some key features. In Andanacharts, a Heikin-Ashi candlestick is blue when the Close is above the Open; conversely, Heikin-Ashi candlesticks are red when the Close is below the Open.
This is similar to normal candlesticks, which are red when the close is below the open and green when the close is above the open.
While traditional Candlestick Patterns can’t be applied to Heikin-Ashi Candlesticks, there is still valuable information that can be got from these charts.
A long blue Heikin-Ashi Candlestick shows strong buying pressure over a two day period. The absence of a lower wick also reflects strength.
A long, red Heikin-Ashi Candlestick shows strong selling pressure over a two day period. The absence of an upper wick also reflects selling pressure.
Small Heikin-Ashi candlesticks or those with long upper and lower wicks show indecision over the last two bars. This often occurs when one candlestick is red and the other is blue.
Heikin-Ashi Candlesticks charts can be applied to any market, most charting platforms include them as an option. There are five primary signals that identify trends and buying opportunities:
Blue candles with no lower wicks indicate a strong uptrend.