Heiken Ashi (HA) Charts are another form of candlestick charts and are primarily used by forex traders to assist them in removing noise and false signals from the charts. It is interesting to note that HA Charts found its origin in Japan.
A normal candlestick chart uses the high, low, open and closing price in its candles. The HA Charts also use the same information but uses a different computation. The difference is that Heiken Ashi Charts depend on the Open, Close, High and Low of the previous candle.
i- Close price: the close price in a HA candle is the average of open, close, high and low price.
ii- Open price: the open price in a HA candle is the average of the open and close of the previous candle.
iii- High price: the high price in a HA candle is chosen from one of the high, open and close price of which has the highest value.
iv- Low price: the low price in a HA candle is chosen from one of the high, open and close price of which has the lowest value.
Hence, the Heiken Ashi candles are related to one another as the close and open prices of each candle are calculated using the previous candle’s close and open price. In addition, the high and low price of each candle is affected by the previous candle. HA chart is somewhat similar to a moving average, but it gives more information and graphical illustration on the direction of a currency pair
Heiken Ashi Charts are useful in trading volatile currency pairs as there is a slight delay before the new candle develops. This delay cuts down the number of false signals when you are trading with the Heiken Ashi Charts as compared to the regular Candlestick Charts. For instance, if you are scalping the 1 Minute or 5 minute charts, using these charts can help you reduce noise on the charts and entering too early making a wrong move against the market.
Different candles in a Heiken Ashi chart
In HA Charts, you will see hollow candles with no lower shadows and these indicate a strong uptrend meaning that you should continue with the buy (long) position.