| Heikin Ashi charts were developed by Munehisa Homma in the distant 18th century. And yes, this is the same Japanese trader who came up with Japanese candlesticks. The idea behind Heikin Ashi is to make the chart more balanced by eliminating minor price fluctuations. The opening price, for example, is calculated as the average between the opening and closing prices of the previous day. The closing price is the average between the opening, closing, low, and high of a candle on a standard chart. Now it is clear why Heikin Ashi is translated from Japanese as "average bar". On the Heikin Ashi charts, trends are better visible since the candle color changes less often. For the same reason, it is easy to recognize a possible trend change. It is also worth paying attention to the size of the candle wick and tail. For example, a green candlestick without a tail signals a strong bullish trend, and conversely, a red candlestick without a wick indicates a strong bearish trend. Moreover, the length of the candlestick gives these signals even more strength. All technical analysis indicators apply to Heikin Ashi. Traders can consider crossovers with moving averages as a signal of a trend reversal, and in combination with oscillators, Heikin Ashi can act as an effective filter of false signals. |
