Heiken Ashi candles is the indicator, that systemize the candle chart, dampen price fluctuations and make it clearer and more visual. It 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 open and close prices of the previous standard candle (Close + Open)/2
- Close level - the average value of the high, low, open and close prices of the current candle (Min+Max+Open+Close)/4;
Therefore, the high is the highest value among the open, close and high prices of the current candle; the low is the lowest value among the open, close and low prices of the current candle.
Heiken Ashi has 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 the upward movement
- Candle with a small body and long shadows from both sides - indicates the possible tendency changes.
- Red candle - usually appears at the beginning or at the end of the downward movement
- Red candle with no upper shadow - strong downward movement
The main disadvantage of Heiken Ashi indicator is the lag behind the price chart.