What is Heikin Ashi And How To Trade It?

What is Heikin Ashi And How To Trade It?

Heikin Ashi?

The three most common chart kinds are presumably recognizable to you: line chart, bar chart, and candlestick chart.

However, there is another form of chart that you should be aware of, which employs a completely different method of displaying price activity.

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The Heikin Ashi.

Like the beer?

Heikin Ashi

Umm nope. Let’s focus now. We’re NOT talking about beer here!

We’re talking about CHARTS! (Although the spelling does seem pretty close. 🤔)

"Heikin Ashi," also known as "Heikin-Ashi" or "Heiken Ashi," is a charting style that resembles a traditional Japanese candlestick chart at first glance.

Read Also: Three Issues That Newbies Forex Traders Face

The manner by which candlesticks are calculated and plotted on a chart differs.

Because they show probable reversals (like a shooting star) or breakouts, traditional Japanese candlesticks can assist you locate appropriate entry locations (like a bullish marubozu closing above a resistance level).

But what if you're already in a trade?

Read Also: Three Issues That Newbies Forex Traders Face

When applied to a price chart, the Heikin Ashi approach can assist you decide whether to stay in or exit a transaction.

For traders who want to know whether to stay in a trade and ride a strong trend and when to get out when the trend weakens, Heikin Ashi charts make candlestick charts more readable.

Heikin Ashi is a modified candlestick charting approach that rearranges how the price is shown to give trend traders more confidence when selecting whether to stay in or quit a trade.

Heikin Ashi charts are an alternative to standard Japanese candlestick charts used by some traders, usually longer-term traders.

Others combine them with conventional Japanese candlestick charts, switching back and forth between the two.

Read Also: Three Issues That Newbies Forex Traders Face

What is Heikin Ashi?

In Japanese, Heikin means “average” and Ashi means “pace”. So together, Heikin Ashi means the “average pace of price”.

Heikin Ashi is a type of candlestick charting technique used to help filter market noise.

The Heikin Ashi technique was created hundreds of years ago by Munehisa Homma, a rice merchant from Jakata, Japan, who is considered the father of the candlestick chart.

So Darth Vader is to Luke Skywalker, as Munehisa Homma is to Heikin Ashi.

Homma realized that by tracking the price action in the rice market, he could actually “see” the psychological behavior of other market participants, and make use of it.

Here’s an example of a Heikin Ashi chart:

To the untrained eye, the chart looks like your typical Japanese candlestick chart.

Each Heiki Ashi candlestick has a body and an upper and/or lower shadow (or wick).

 They’re the same right?

Nope.

There’s a BIG difference between the two types of candlestick charts.

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Let’s learn what that difference is.