Heikin Ashi charts are a kind of candlestick charts and are designed to remove noise in charts. Let’s say you’re a scalper who usually trades 2-minute or 5-minute charts and is looking for ways to reduce noise on charts. Suppose you want to trade a variable currency pair and want to reduce the number of false trading signals. Then you need to look at these charts.
Heikin Ashi charts introduce signal latency, which can be good when trading highly volatile currency pairs such as GBPJPY. The Heikin Ashi charts were also designed by the Japanese. However, they use a different method to calculate the candles.
Unlike conventional candlestick charts, which use the “Open, Close”, “High” and “Low” timeframes to calculate each candle, Heikin Ashi’s candles use previous candles and are based on the following dependence:
Close; This is calculated by the average of the open, closed, high and low levels. (O + C + H + L) / 4
Open: this is the average of the Opening and Closing of the previous candle.
High; This is the highest value among open, close, high and low values.
Low; This is the lowest value among open, closed, high and low values.
So in the case of Heikin Ashi candles you need to know the opening and closing of the previous candle to calculate the opening and closing of the new candle. In the same way, the values of the maximum and minimum are affected by the previous prices for opening and closing the candle.
Heikin Ashi charts are very important for trading highly volatile currency pairs as it is a certain delay until a new candle appears. This delay reduces the number of false alarms when you trade with Heikin Ashi cards compared to regular candles.
In the same way, Heikin Ashi Charts are also very useful in scalping strategies. For example, if you are scalping 1-minute charts, using these charts can help you reduce the noise on the charts and enter too early by taking the wrong step against the market.
When the market is bullish, Heikin Ashi candles have large bodies with long upper shadows and no lower shadows. Similarly, when the market is bearish, these candles have large bodies with long lower shadows and no upper shadows. Reversal candles are almost similar to Dodge candles, which have almost no bodies but long top and bottom shadows.
When using these charts hollow candles without lower shadows indicate a strong uptrend, which means continuing a long position and collecting as much profit as possible. Hollow candles indicate a rise in place. This means continuing your long position and quitting any short deal you may have.
Similarly filled candles without top shadows indicate a strong downtrend, which means adding shorter positions and exiting any long deal that you may have. Filled candles indicate a downward trend. A filled candle means quitting long trades and adding new short trades.
In the case of candles, which have almost no bodies and long upper and lower shadows, means a reversal of the trend. This is a time to buy or sell for risky traders if you are short or long trading. However, for more cautious traders, they can wait for the confirmation signal.
Now the limitations of Heikin Asha. These charts are good for trading volatile currency pairs and short terms such as the 2-minute or 5-minute charts used in scalping. However, these charts are not suitable for trading for longer periods as the candles on these charts are already delayed and you may enter the market too late. So, if you are a scalper or like to trade variable currency pairs, you should master Heikin Ashi charts.