Heikin Ashi

Heikin Ashi, also known as Heiken-Ashi, is a popular type of candlestick chart used in technical analysis to smooth out price fluctuations and provide a clearer view of the overall trend. Heikin Ashi charts are calculated using a modified formula and are typically represented using a different set of candlestick shapes. Here’s how Heikin Ashi is calculated, and I’ll provide you with an image prompt at the end.

What is Heikin-Ashi?

Heikin-Ashi, which translates to “average bar” in Japanese, is a modified form of candlestick charting used in technical analysis to represent price movements in financial markets. Heikin-Ashi charts are designed to provide a smoother and simplified view of price trends compared to traditional candlestick charts.

Normal candlestick charts are composed of a series of open-high-low-close (OHLC) candles set apart by a time series.

MT4 Heikin-Ashi Smooth pattern

Characteristics and features of Heikin-Ashi charts

1. Smoothing: Heikin-Ashi charts are created by applying a specific formula to the price data, which smooths out the price movements and reduces market noise. This smoothing effect helps traders better identify and follow trends.
2. Calculation: Heikin-Ashi charts use a modified calculation for each candlestick. The formula for the Heikin-Ashi candlestick values is as follows:
   • Heikin-Ashi Close: The average of the open, high, low, and close prices for the given period.
   • Heikin-Ashi Open: The average of the previous Heikin-Ashi open and close.
   • Heikin-Ashi High: The highest value among the high, Heikin-Ashi open, and Heikin-Ashi close.
   • Heikin-Ashi Low: The lowest value among the low, Heikin-Ashi open, and Heikin-Ashi close.
3. Appearance: Heikin-Ashi candlesticks look different from traditional candlesticks. They have a smoother, less jagged appearance, and there are fewer variations in color. Typically, an up (bullish) candle is represented as a filled or white candlestick, while a down (bearish) candle is represented as an empty or differently colored candlestick.
4. Trend Identification: Heikin-Ashi charts are particularly effective for identifying and following trends in the market. Traders use them to reduce the noise caused by price fluctuations and focus on the overall direction of the market.
5. Support and Resistance: Heikin-Ashi charts can help traders identify support and resistance levels more clearly, making it easier to make trading decisions based on these key levels.
6. Indicators and Patterns: Heikin-Ashi charts can be used in conjunction with various technical indicators and chart patterns to make trading decisions. Traders often look for patterns and signals within the Heikin-Ashi chart to make informed trades.

Heikin-Ashi charts are not suitable for all trading strategies, as they may not provide as much detail on short-term price movements as traditional candlestick charts. Traders often use Heikin-Ashi in combination with other forms of analysis and charting methods to gain a more comprehensive view of market conditions. It’s important to understand the characteristics of Heikin-Ashi charts and how to interpret them effectively if you choose to incorporate them into your trading strategy

The Heikin-Ashi technique uses a modified formula

To calculate the Heikin Ashi candlestick, you need the following data:

1. Close Price (C)
2. Open Price (O)
3. High Price (H)
4. Low Price (L)

How to calculate a single Heikin Ashi candlestick

1. Calculate the Heikin Ashi Close (HA-Close):

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

2. Calculate the Heikin Ashi Open (HA-Open):

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

Where “Previous HA-Open” and “Previous HA-Close” are the values of HA-Open and HA-Close from the previous Heikin Ashi candlestick.

3. Calculate the Heikin Ashi High (HA-High):

HA-High = Max(High, HA-Open, HA-Close)

4. Calculate the Heikin Ashi Low (HA-Low):

HA-Low = Min(Low, HA-Open, HA-Close)

Once you have calculated the HA-Close, HA-Open, HA-High, and HA-Low, you can represent these values using modified candlestick shapes. Heikin Ashi candlesticks are typically color-coded to reflect the direction of price movement, with bullish candlesticks in one color and bearish candlesticks in another.

Constructing the Chart

The Heikin-Ashi chart is constructed like a regular candlestick chart, except the formula for calculating each bar are different. The time series is defined by the user. Depending on the type of chart desired, such as daily, hourly or five-minute. The down days are represented by filled candles, while the up days are represented by empty candles.

 Heikin-Ashi has a smoother look, as it is essentially taking an average of the movement. 

The price scale is also of note. The current price shown on a normal candlestick chart will also be the current price of the asset, and that matches the closing price of the candlestick (or current price if the bar hasn’t closed). It is taking an average, the current price on the candle may not match the price the market is actually trading at.

How to trade setup heikin ashi on Metatrader 4(MT4) platform?

Trading setups using Heikin-Ashi charts in the MetaTrader 4 (MT4) platform are similar to trading setups with traditional candlestick charts. Heikin-Ashi charts are often used to identify and follow trends in the market. Here’s a step-by-step guide on how to set up and trade using Heikin-Ashi charts in MT4:

1. Add Heikin-Ashi Indicator to Your Chart:
   • Download a Heikin-Ashi indicator for MT4 from a reputable source and save it to your computer. These indicators can often be found on trading forums, developer websites, or the MQL5 Market.
   • Open the “Data Folder” in MT4 by clicking “File” and then selecting “Open Data Folder” in the terminal.
   • Navigate to the “MQL4” folder and find the “Indicators” folder.
   • Copy the downloaded Heikin-Ashi indicator file (usually ending in “.ex4” or “.mq4”) into the “Indicators” folder.
   • Restart MT4 to ensure that the indicator is available for use.
2. Open a Heikin-Ashi Chart:
   • Open a new chart for your preferred financial instrument.
   • From the “Navigator” panel on the left side of the MT4 terminal, find the custom Heikin-Ashi indicator you added in the “Custom Indicators” section.
   • Drag and drop the Heikin-Ashi indicator onto your chart.
3. Customize Indicator Settings:
   • Right-click on the chart with the Heikin-Ashi indicator and select “Indicators List.”
   • Click on the indicator’s name to modify its settings, such as the color scheme and other display preferences. Customize it to match your trading style.
4. Analyze the Heikin-Ashi Chart:
   • Use the Heikin-Ashi chart to identify trends, reversals, and patterns just as you would with traditional candlestick charts.
   • Pay attention to the color and shape of the Heikin-Ashi candlesticks. Typically, white or green candlesticks indicate bullish trends, while red or black candlesticks represent bearish trends.
   • Look for patterns, such as Doji, Harami, Engulfing, and other Heikin-Ashi-specific patterns.
5. Trading with Heikin-Ashi:
   • Develop a trading strategy based on your analysis of the Heikin-Ashi chart. For example, you may choose to enter a trade when you see a series of bullish Heikin-Ashi candlesticks after a downtrend (bullish reversal).
   • Set your stop-loss and take-profit levels based on your analysis.
   • Use proper risk management techniques, such as position sizing and risk-reward ratios.
6. Execute Trades:
   • Place your trades in MT4 as you normally would. Right-click on the chart, select “Trading” and choose “New Order.”
   • Enter your trade details, including the asset, volume (position size), stop-loss, and take-profit levels.
   • Confirm and execute your trade.
7. Monitor and Manage Trades:
   • Continuously monitor your trades, adjusting stop-loss and take-profit levels if necessary.
   • Consider trailing your stop-loss to lock in profits as the trade progresses.

Remember that Heikin-Ashi charts are just one tool in your trading arsenal. It’s essential to integrate them into a comprehensive trading strategy that may include other technical indicators, fundamental analysis, and risk management principles. Additionally, practice your strategy in a demo account before applying it to live trading.