Heikin Ashi is a Japanese trading strategy created in the 1700s by a Japanese Rice Trader known as Munehisa Homma or Sokyu Homma. He started the use of candlestick charts for detecting and profiting from chart patterns.
Candlesticks are one of the earliest known technical chart indicators available to swing traders for asset price evaluation. Each candle represents a single trading session on a candlestick chart, which can visualize price movements and uncover patterns.
Heikin Ashi is a combination of two Japanese words: Heikin means “average” or “balance,” and Ashi means “foot” or “bar.” The Heikin Ashi charts differ from traditional Japanese candlestick charts in that they include data from the previous session to demonstrate how average values fluctuate over time.
– Open = (open of subsequent bar + close of subsequent bar)/2– Close = (open + high + low + close)/4– High = the highest value from the high, open, or close of the current period– Low = the lowest value from the low, open, or close of the current period
Construct the first Heikin Ashi (HA) candle in one period using the preceding formulas. Combine the high, low, open, and close prices to get the first HA close price.
The Heikin Ashi trading style focuses on long-term trends. Minor corrections and consolidations are filtered out, making them practically invisible on the chart.
A Heikin Ashi chart will show a series of green (or other colored) candlesticks with no lower shadow or wick in an upward-moving market. In a downward trend, there is no top wick and the candlesticks are usually red.
Implementing a Heiken-Ashi trading approach can assist traders in identifying the start of solid trends and adjusting their portfolios appropriately, opening or increasing long positions when bullish trends arise, and closing positions when bearish trends begin.