Heikin Ashi, also sometimes spelled Heiken-Ashi, means average bar in Japanese. The Heikin-Ashi technique are often utilized in conjunction with candlestick charts when trading securities to identify market trends and predict future prices. It’s useful for making candlestick charts more readable and trends easier to analyze. For example, traders can use Heikin-Ashi charts to understand when to remain in trades while a trend persists but get out when the trend pauses or reverses. Most profits are generated when markets are trending, so predicting trends correctly is important .
Normal candlestick charts are devised of a series of open-high-low-close (OHLC) candles set apart by a time series. Though the Heikin-Ashi technique shares some characteristics with standard candlestick charts, it uses a modified formula of close-open-high-low (COHL):
Close= ¼ (Open+High+Low+Close)
(The average price of the current bar)
Open= ½ (Open of Prev. Bar + Close of Prev. Bar)
(The midpoint of the previous bar)
High= Max (High, Open, Close)
Low= Min (Low, Open, Close)