Heikin Ashi, like any other instrument used for technical analysis, is beneficial, but it has some flaws or limitations.
Let us go over these limitations.
True prices are not shown by Heikin Ashi candlesticks.
Heikin Ashi candlesticks are NOT shown from actual prices, unlike traditional Japanese candlesticks.
The Heikin Ashi candlesticks do not indicate the precise open and closing prices for a certain time period since they are averaged.
Let us look at a real example.
Here’s a daily (1D) Heikin Ashi chart of the EUR/USD:
Concentrate on the last candlestick. A handful of things to keep in mind:
The candle is bright red. As a result, the candle closed lower than it opened.
It opened at 1.09005.
It closed at 1.08531.
Let’s take a look at a daily EUR/USD chart using a traditional Japanese candlestick chart:
Concentrate on the last candlestick. A handful of things to keep in mind:
The candle is green. As a result, the candle closed higher than it opened.
This is the truth. The EUR/USD pair actually ended the day higher. In contrast, Heikin Ashi displayed a red candle.
It started at 1.08373.
It closed at 1.08706.
Let’s go over what we just saw:
Chart Type | Last Candlestick | Open Price | Close Price |
Heikin Ashi Candlestick | Red | 1.09005 | 1.08531 |
Traditional Candlestick | Green | 1.08373 | 1.08706 |
Do you notice a difference?
Despite the fact that the “actual” candle closed green, Heikin Ashi indicates that the EUR/USD is still in a downtrend.
Make sure you understand the pricing you’re looking at.
Because the exact open and close prices cannot be seen, some traders choose to utilize a Heikin Ashi chart as an INDICATOR rather than a price chart.
Heikin Ashi charts obscure actual price information.
This restriction is related to the first.
Many traders value the closing price, yet the real closing price is NOT shown on a Heikin Ashi candlestick.
To recap, the Close price is calculated as follows:
Close = (Open+High+Low+Close) / 4
Only the averaged closing price is displayed.
Make certain that you are aware of the actual closing price, rather than the averaged figure.
This is readily accomplished by returning to a standard Japanese candlestick chart.
Heikin Ashi charts may be too slow for day traders or scalpers.
A trade setup takes longer to build because the Heikin Ashi candlestick requires price information from two periods.
Longer-term traders, such as swing traders or position traders, who have more time to let their deals develop, are less affected by this.
However, it may be an issue for shorter-term traders such as day traders and scalpers.
Scalpers, for example, require quick price movements and may feel that Heikin Ashi charts are not sensitive enough for their trading style.
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