Heikin Ashi

Heikin Ashi

A type of candlestick chart that shares many characteristics with standard candlestick charts, but differs because of the values used to create each bar. Instead of using the open-high-low-close (OHLC) bars like standard candlestick charts, the Heikin-Ashi technique uses a modified formula-

Close = (Open+High+Low+Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)

These charts can be applied to many markets; however, they are most often used in the equity and commodity markets.

There are five primary signals that identify trends and buying opportunities-

• Hollow candles with no lower "shadows" indicate a strong uptrend- Hollow candles signify an uptrend- you might want to add to your long position, and exit short positions.
• One candle with a small body surrounded by upper and lower shadows indicates a trend change- risk-loving traders might buy or sell here, while others will wait for confirmation before going short or long.
• Filled candles indicate a downtrend- you might want to add to your short position, and exit long positions.
• Filled candles with no higher shadows identify a strong downtrend- stay short until there's a change in trend.

These signals show that locating trends or opportunities becomes a lot easier with this system. The trends are not interrupted by false signals as often, and are thus more easily spotted. Furthermore, opportunities to buy during times of consolidation are also apparent. 

The Heikin-Ashi technique is used by technical traders to identify a given trend more easily. Hollow candles with no lower shadows are used to signal a strong uptrend, while filled candles with no higher shadow are used to identify a strong downtrend.

This technique should be used in combination with standard candlestick charts or other indicators to provide a technical trader the information needed to make a profitable trade.

Conclusion
The Heikin-Ashi technique is extremely useful for making candlestick charts more readable--trends can be located more easily, and buying opportunities can be spotted at a glance. The charts are constructed in the same manner as a normal candlestick chart, with the exception of the modified bar formulas. When properly used, this technique can help you spot trends and trend changes from which you can profit!