By this time, you’re probably already familiar with the various price pattern charts. There are line charts, bar charts, and the Japanese candlestick.
These patterns are all useful when you’re trying to determine the ideal entry position. However, there is another price chart pattern that can help you decide whether to stay in or get out of trade positions.
This is the Heikin Ashi pattern.
In this lesson, you’ll learn what the Heikin Ashi pattern is, how it differs from a Japanese candlestick, and the basics of how to use it.
Lesson Highlights
- Heikin Ashi comes from the Japanese words “Heikin” and “Ashi,” which translate to “average” and “pace,” respectively.
- Although the origins of Heikin Ashi remain unclear, there are some who attribute its development to Munehisa Homma, the father of Japanese candlesticks.
- Heikin Ashi charts help traders filter out irrelevant market data and focus on more enduring trends.
- Heikin Ashi charts use Japanese candlestick patterns, resulting in a similarity in appearance.
- Heikin Ashi candlesticks start at the middle level of the previous candle, rather than at the same level as the previous candle’s close.
What Is a Heikin Ashi Chart?
Heikin Ashi derives from two Japanese words, “Heikin,” meaning “average,” and “Ashi,” which means “pace.” Together, they form “Heikin Ashi,” which literally translates to “the average pace.”
As its (translated) name implies, Heikin Ashi charts help traders gain a smoother “reading” of the price movements from candlestick patterns. This price pattern chart effectively removes “background noise” (i.e., short-term fluctuations) from the market.
By eliminating irrelevant price movements, traders can focus on the underlying market trends influencing the long-term movement of prices.
The exact origins of the Heikin Ashi chart have been lost to history. Some say Japanese rice merchants developed the technique; others specifically attribute its development to Munehisa Homma, the creator of the Japanese candlestick pattern.
While there is no universally acknowledged documentation of Heikin Ashi’s development, no one disputes the fact that the technique was introduced to the West by Dan Valcu, a renowned technical trader.
Heikin Ashi vs. Japanese Candlestick
As Heikin Ashi charts are built upon candlestick charts, the two can look very similar to casual observers.
The table below can help you differentiate between the two price pattern charts.
| Heikin Ashi | Traditional Japanese Candlestick | |
| Calculating candlestick values | Each candlestick’s value is derived from a modified calculation using the previous candlestick’s open, close, high, and low price averages. | Each candlestick represents the open, close, high, and low prices for a specific period. |
| Price movement tracking | Reduces background noise or irrelevant market movements to provide a smoother representation of price movements. | Shows the raw price movements within specific periods. |
| Candlestick appearance | Candlesticks have smaller bodies. Candlestick colors are determined by the relationship between the current and previous candles’ open and close. | Each candlestick has a body representing the open and close prices, and the shadows for highest/lowest prices, within a given period. |
| Trend identification | Helps traders identify long-term trends by eliminating short-term fluctuations. | Helps traders identify trends and reversals. |
| Duration | The same period as traditional candlesticks. | Each candlestick represents a specific period (e.g., a minute, an hour, a day, a month). |
To better compare the Heikin Ashi vs. Traditional candlesticks patterns, look at the image below.
You will notice that the Heikin Ashi chart gives you a much smoother presentation of price movements.
Another key distinction between the two charts is where the candlesticks’ bodies begin. In traditional candlestick patterns, the current candlestick’s body opens at the same level where the previous one closed.
The same is not true for Heikin Ashi candlesticks. If you look closely at the Heikin Ashi chart, you’ll see that each candlestick opens from the middle of the previous candle.
This difference is a result of the way Heikin Ashi candlesticks are calculated.
In the next lesson, you’ll learn about another way of reading price movements – the Elliot Wave.
