How is Heikin Ashi calculated?
Learn how to calculate and plot Heikin Ashi candlesticks on a chart.
As we discussed in the previous session, they may appear to a novice to be conventional candlesticks, but they are not.
It’s the same with Heikin Ashi charts and regular Japanese candlestick charts; you need to be able to tell them apart or your trading account will go bankrupt.
Each candlestick on a typical Japanese candlestick chart depicts the price’s open, high, low, and closure within the current time period.
Each candlestick on Heikin Aishi candlestick charts incorporates price movement not only from the present time period, but also from the past.
Let’s take it one step at a time and look at how a Heikin Ashi candlestick is calculated.
First, let’s look at a GBP/JPY Heikin Ashi chart for reference:
As you can see, it’s identical to a traditional Japanese candlestick, with the exception that the open and closure times are calculated differently.
Each Heikin Ashi candle, like a standard Japanese candlestick, has an open, close, high, and low position.
This means that the Heikiin Aishi formula has FOUR parts:
A Heikin Ashi candlestick’s OPEN equals the previous candle’s MIDPOINT.
If you examine the chart closely, you’ll note that each new candlestick begins in the middle of the previous one.
Open = [(Open price of previous candle) + (Close price of previous candle)] / 2
The CLOSE of each Heikin Ashi candlestick equals the average value between the four parameters: open, close, high, and low:
Close = (Open + High + Low + Close) / 4
The HIGH of a Heikin Ashi candlestick takes the actual high of the period. This could be the highest shadow, the open, or the close. Whichever is the highest.
High = Maximum Price Reached
The LOW of a Heikin Ashi candlestick takes the actual low of the period. This could be the lowest shadow, the open, or the close. Whichever is the lowest.
Low = Minimum Price Reached
The general idea behind the Heikin Ashi candlesticks is that they smooth the price action.
The Heikin Ashi candlestick chart reduces most of the market noise seen by standard Japanese candlestick charts.
The Heikin Ashi formula is summarized below:
Heikin Ashi Formula: High = Maximum of High, Open, or Close (whichever is highest) Low = Minimum of Low, Open, or Close (whichever is lowest) Open = [Open (previous bar) + Close (previous bar)] /2 Close = (Open + High + Low + Close) / 4
Next Lesson: How to Analyze a Heikin Ashi Chart