Heiken Ashi candles is an indicator that organizes the candlestick chart, smoothes out price fluctuations and makes the chart clearer and more informative. This is a useful and popular instrument among modern traders.
Heiken Ashi uses a special formula which contains:
- Heiken Ashi open level - the average value of the opening and closing prices of the previous standard candle (Close + Open)/2
- Close level - the average value of the high, low, opening and closing prices of the current candle (Min+Max+Open+Close)/4;
Therefore, the high is the highest value among the opening, closing and high prices of the current candle; the low is the lowest value among the opening, closing and low prices of the current candle.
Heiken Ashi comes in the following types:
- Green candle with no lower shadow - strong upward movement
- Green candle with a shadow - usually appears at the beginning or at the end of upward movement
- Candle with a small body and long shadows on both sides - indicates a possible trend reversal.
- Red candle - usually appears at the beginning or at the end of downward movement
- Red candle with no upper shadow - strong downward movement
The main disadvantage of the Heiken Ashi indicator is the lag behind the price chart.