What distinguishes Heikin Ashi from a standard candlestick? Let’s compare a Heikin Ashi candlestick chart to a standard Japanese candlestick chart.Because a picture is worth a thousand pips, let’s have a look at some actual charts.
To begin, here is a traditional Japanese chart of the GBP/JPY on the daily (1D) timeframe:
The same GBP/JPY pair is seen here using a Heikin Ashi candlestick chart:
Let’s put them both side-by-side:
The classic Japanese candlestick chart is on the LEFT, and the Heikin Ashi chart is on the RIGHT.
The chart on the right shows that directional moves are smoothed out in a way that the chart on the left does not.
Traditional Japanese candlestick charts’ candles regularly change from green to red (up or down), making them difficult to read.
Candles on the Heikin Ashi chart, on the other hand, reveal more consecutive colored candles, making it easier for traders to recognize historical price movements.
You’ll note that Heikin Ashi charts’ candles prefer to stay green during an uptrend and red during a downtrend.
In contrast, traditional Japanese candlesticks alternate color even when the price is substantially moving in one way.
You can easily observe that the price activity on the Heikin Ashi chart is significantly smoother.
This is why some forex traders choose to use Heikin Ashi candles since they reduce chart noise and allow them to observe trends more precisely.
What distinguishes Heikin Ashi from a traditional Japanese candlestick chart is the way the price is displayed in terms of the open and close.
If you look closely at the Heikin Ashi chart, you’ll note that each candlestick starts from the MIDDLE of the candlestick before it, rather than the level where the prior candlestick closed.
Next Lesson: How to Calculate Heikin Ashi
