Heikin-Ashi - What Is Heikin-Ashi and How to Trade with It?

by Vahid | Technical Analysis | Monday, February 25th, 2008

In forex or stock market, we can make or lose money when the price goes up and down. We need to be able to predict the direction of the market. Different traders do this using different methods but for most traders, technical analysis of the price charts is the easiest way. So they spend a lot of time to learn technical analysis.

In fact, technical analysis was invented and introduced by Japanese traders and by the invention of the candlesticks. Those who are familiar with the candlestick charts know that it is the best and fastest way for understand the condition of the market and the psychological situation of the buyers and sellers.

Japanese traders didn’t stop improving their technical analysis methods and tools. They worked a lot and tried to make the technical analysis and price prediction easier and faster and Heikin-Ashi chart that came after the candlestick chart is one of the several different achievements of Japanese traders.

I can not say that you can predict faster using the Heikin-Ashi charts but it is easier than candlestick charts. In this article, I explain about the Heikin-Ashi charts signals and analysis and will compare it with the candlestick charts and then talk about my personal opinion about Heikin-Ashi charts and the way that you can use them in your trades.

So What Is a Heikin-Ashi chart and how does it look like?

Heikin-Ashi chart looks like the candlestick chart but the method of calculation and plotting of the candles on the Heikin-Ashi chart is different from the candlestick chart.

If you use MetaTrader you can download the Heikin Ashi and Smoothed Heikin Ashi templates HERE.

In candlestick charts, each candlestick shows four different numbers: Open, Close, High and Low price (It is recommended to learn the candlesticks first) and each candlestick is independent and has no relation with the previous candlestick.

But Heikin-Ashi candles are different and each candle is calculated and plotted using some information from the previous candle:

1- Close price: the close price in a Heikin-Ashi candle is the average of open, close, high and low price.
2- Open price: the open price in a Heikin-Ashi candle is the average of the open and close of the previous candle.
3- High price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the highest value.
4- Low price: the low price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the lowest value.

So candles of a Heikin-Ashi chart are related to each other because the close and open price of each candle should be calculated using the previous candle close and open price and also the high and low price of each candle is affected by the previous candle. So a Heikin-Ashi chart is slower than a candlestick chart and its signals are delayed (like when we use moving averages on our chart and trade according to them).

What are the advantages and disadvantages of this delay?

This delay has made the Heikin-Ashi candle as a good indicator for volatile currency pairs like GBP-JPY because it prevents us from rushing and making mistakes amd trading against the market.

Lets see how a Heikin-Ashi chart looks like and compare it with a candlestick chart:

Heikin-Ashi candle - Heikin-Ashi chart

The above chart has two parts. The upper part is the Heikin-Ashi chart and the lower part is the candlestick chart. Numbers 1 and 2 in the candlestick chart show a sell signal whereas if you compare the candlesticks number 1 and 2 with the Heikin-Ashi candles number 1 and 2, you will see that the Heikin-Ashi candles don’t show any sell signal yet. It is just the candle number 3 that shows a signal. So the Heikin-Ashi candles are about one or two candles delayed.

If I wanted to trade using the above chart and with the candlestick chart signals, I would go short when the candlestick number 3 would break the low price of the candlestick number 2 whereas if I wanted to trade only using the Heikin-Ashi chart, I would have to wait for the candlestick number 4 to be formed.

In other part of the chart, the candlesticks number 5, 6, 7, and 8 made another good sell signal. I would go short when the candlestick number 9 broke the low price of the candlestick number 8. But with the Heikin-Ashi chart, I would have to wait for the candle number 9 to be formed completely and also the next candle to break the low price of the candle number 9.

So the Heikin-Ashi chart is delayed and the candlestick chart is much faster and helps us to make more profit. So why should we use a Heikin-Ashi chart? As I have already explained, because of the delay that the Heikin-Ashi chart has, it has less number of false signals and prevent us from trading against the market. On the other hand, Heikin-Ashi candles are easier to read because in contrast with the candlesticks they don’t have a lot of different shapes and formations.

Different candles in a Heikin-Ashi chart:

1- Bullish candles:

When the market is Bullish, Heikin-Ashi candles have big bodies and long upper shadows but no lower shadow. Look at the big uptrend in the below chart. As you see almost all of the candles have big bodies, long upper shadows and no lower shadow.

2- Bearish candles:

When the market is Bearish, Heikin-Ashi candles have big bodies and long lower shadows but no upper shadow. Look at the big downtrend in the below chart. As you see almost all of the candles have big bodies, long lower shadows and no upper shadow.

3- Reversal candles:

Reversal candles in the Heikin-Ashi charts look like Doji candlesticks. They have no or very small bodies but long upper and lower shadows. Look at the reversal candles in the below chart:

How can you use the Heikin-Ashi chart in your trades?

I know that some traders only use Heikin-Ashi to trade but I don’t agree with it. As you saw Heikin-Ashi is delayed. So it is good for trading volatile currency pairs like GBP-JPY and with small time frames. It is good for intraday trading and scalping using small time frames like 5 minutes or 2 minutes. It is not suitable for big time frames like daily and 4 hours because you will be too late in many cases and so you have to close your trade before you make any profit.

Have both the candlestick and Heikin-Ashi on your chart and add a 14, 7, 3 Stochastic. Buy when both of the Stochastic fast and slow lines go up from the oversold area and at the same time both the candlestick and Heikin-Ashi charts show reversal signals. Sell when both of the Stochastic fast and slow lines go down from the overbought area and at the same time both the candlestick and Heikin-Ashi charts show reversal signals.

Look at the below 2 minutes chart and see two short trade and one long trade opportunities:

Two good trades in the 15 minutes chart:

A good short trade in 5 minutes chart:

A good long trade in the 5 minutes chart:

Keep in your mind that you have to try any new system with the demo account and if it worked, you can use it with the real account.

Please use the below form to submit your questions or comments and I will answer as soon as possible.



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Further Reading:

 
54 Comments:
post a comment
Comment by pol
2008-02-26 01:21:08

Hello,
I hope that you feel yourself better this last days.
Please a little question.Why do you use the stoch.settings at 14,7,3?
Is this a ussable setting who works good?I use always 8,3,3 or 14,3,3
Sorry for my bad English.
Thanks

Comment by Vahid
2008-11-08 10:50:45

Pol,

I just wanted to make the Stochastic a little slower to have less false signals. If you use the settings that make it faster and you are happy with it, you can use them.

 
 
Comment by Ikpo
2008-02-26 12:59:49

Hello
There is no Heikin-Ashi chart in my trading platform, I use Fx sol
Please, what do i do.
Thanks
Ikpo

Comment by Vahid
2008-11-08 10:50:05

Ikpo,

You have to ask them to add it to the platform. This is what they have to do it sooner or later because Hiekin-Ashi is getting popular.

 
 
Comment by olanrewaju
2008-02-27 06:54:54

thanks vahid again , no knowledge is a waste. enjoy the lesson

 
Comment by ejissupreme
2008-02-29 00:14:04

Vahid, what is goin on?

we don’t seem to see your signals again

i need to hear your comments on the market for next week. they look good when i combine with my own analysis. Particularly on GPBUSD and EURUSD.

Thanks for your informative articles

 
Comment by Raymond Saunders
2008-03-03 18:34:21

Hello Vahid,
What charting software do you use in the Japanese Candlestick and Heikin Ashi examples above to plot the charts in seperate windows.? At present I am using MetaTrader 4. This plots the candlesticks and Heikin Ashi in the same window on top of each other and it is difficult to see the signals.

Comment by Vahid
2008-11-08 10:49:01

Raymond Saunders,

I use the CMC Markets platform which is called MarketMaker. You can find the same facilities with the RealTimePro platform too.

Comment by Mustaffa Kamal
2008-12-08 03:32:00

Hi,

Can u pls explain more detailed about Heikin Ashi, and how to download if I am using CMC MARKETMAKER.

Thanks

Comment by Vahid
2008-12-09 12:25:13

Hi Mustaffa,

CMC MarketMaker has a good Heikin Ashi. Just go to the price chart properties and change Candlestick to Hekin Ashi.

 
Comment by Mustaffa Kamal
2008-12-20 03:41:58

Hi Vahid.

Thanks for your useful inform and useful. Once again thanks.

 
Comment by Mustaffa Kamal
2009-01-15 08:34:31

Hi vahid,

I look like to learn more about TAOS is it the term is Alchemy Of Speculation, Can u pls explain about this.

Thanks

Mustaffa Kamal

 
Comment by Vahid
2009-01-15 17:47:07

Unfortunately I know nothing about it.

 
 
 
 
Comment by Rory
2008-03-09 08:31:04

What’s the status on future market analysis?. Have not seen any updates on the Forex market in a while.

 
Comment by Akbar
2008-04-01 13:50:45

Hello Brother,

May I know how to construct and how to interprete the Heikin-Ashi chart ? I shall be highly obliged. Thanks.

Akbar.

 
Comment by HUSSAIN
2008-04-05 11:28:16

THANKS . YOU ARE DOING A WONDERFUL JOB OUT THERE . YOUR INFOMATION ARE SOLID AND VERY RESOURCEFUL . MORE GRESE TO YOUR ELBOW

 
Comment by seelan
2008-04-23 10:22:09

Informative and excellant for beginners like me

 
Comment by Isaac Raymond
2008-05-15 04:55:38

Hi Vahid,

I would like to know if there is a difference between the “Heikin Ashi Smooth,”
and the “Heikin Ashi ” .

Is there different settings on the Heikin Ashi.?

Can you recommend a platform that has the Heikin Ashi ?

Is it recommended to be used on Commodities and Futures?

It appears to be a very simple / easy way to trade without the noise.

I live in Melbourne — Australia

Thanks

Best Regards

Isaac

Comment by Marian
2008-11-09 17:39:36

Think or Swim has 3 kinds of candlestick charts. The regular and 2 kind os Heikin-Ashi. You can trade anything on their platform stock, option, futures, forex etc.

They are extrememly cheap and it is an awesome platform. thinkorswim.com I do not use the web based version but download the software, They listen to their customers and are constantly upgrading the software.

Marian

 
 
Comment by Tosin
2008-05-19 05:51:26

Hi Vahid,

I just came across your wonderful site today and I have gone through almost all the topics you have touched on Forex trading.

I must say that you are doing a great job, Kudos to you.

I am interested in Forex and I have learnt a great deal from you site today.

The problem I have is my job will not really allow me to trade while at work, can you recommend a legitimate and reliable Forex Broker to me to help me manage my account.

Your assistance will be greatly appreciated.

Thanks and God bless you.

Tosin

Comment by Vahid
2008-11-08 10:47:16

Hi Tosin,

Thanks for your comment.

There is no reliable broker that manage your account for you. In fact you have to be so careful about those who claim that they can work with your money and increase it. Also do not try the auto-trading systems (robots).

The only thing I can recommend is learning the forex completely and then spending some time to trade. If you don’t have time, you can work as a swing trader and focus on one currency pair. So you will not have to spend more than 15 to 30 per day to check the charts and take the proper position if you see a signal.

 
 
Comment by Nasir
2008-06-09 23:23:00

Hello

I like to learn forex trading. I am equity option trader.
Where do I start?

Thanks.

Nasir

Comment by Vahid
2008-11-08 10:46:48

Hi Nasir,

Thanks for your email.

I strongly suggest you to read the “Forex Patterns & Probabilities” by Ed Ponsi.

You can also take a look at the articles I have at http://www.forexoma.com/learn-more/

It is not completed yet but there are some informative articles there.

 
 
Comment by tony
2008-06-16 11:52:16

Hi,
I tried to sign up for your blog posts by email, but it wouldn’t let me. Check it out so I can get it. I usually trade the grain market but haven’t been using candlesticks. I think I could learn something from you.

Thanks,
Tony

 
Comment by kishor
2008-08-20 04:04:26

I intrested in learn technical study for chart. i have basic knoledge about it. but i want study in deep. please suggest me.

Thank You

 
Comment by Shawn Casey
2008-08-22 17:58:23

Hi,
Just wanted to say the Heikin-Ashi info was very informative and a good read. Do you know if there are any internet charting sites that have Heikin-Ashi? If not I will probably just get Meta Trader.
Thanks
Shawn from Canada

Comment by Marian
2008-11-09 17:46:02

check out thinkorswim.com download the software and open an account (it does not have to be funded right away) and you can use their platform for about 2 months and paper trade to get use to it, It is so powerful and they have Heikin-Ashi and so much more. I have been with them for 9 months now and every month they improve and add things to their platform and it is so cheap trading with them their prices are great and you can trade stock,. option, futures, forex etc.
Good luck, Marian

 
 
Comment by tymen
2008-09-01 11:02:44

Hello Vahid,
Is there a difference between the heikin ashi and the smooothed heikin ashi?

If so, how would you trade the smoothed version?

 
Comment by Christian
2008-09-15 10:10:39

Send more article to my inbox on other indicator and chart showing and analysing buy or sell signal. lik ur teaching

 
Comment by Israel
2008-11-07 22:59:32

This could be very helpful to those of us still groping in the forex dackness. I appreciate this alot.
I remain very thankful.

Comment by Vahid
2008-11-08 10:45:50

Thanks Israel.

 
 
Comment by Esemayon
2009-01-10 01:42:54

Thanks. I grab one or two things from your analysis of Heiken Ashi indicator.

More grease to your elbow.

Regards.
Esemayon.

 
Comment by Isaac
2009-01-27 04:17:53

Hi Vahid,

Thanks for the great website, I can only afford to trade intraday at the moment (due to stop loss being smaller). I have lost a lot money trading Futures and Options following so called GURUS.I am not really confident in taking an
overnight position at the moment.
I am very interested in the above system, with the Hieken Ashi candlessticks, with the 5 or 15 minute time frame, but how do calculate a stop loss ?,
as this is my biggest problem, I always get stopped out.

Thanks for the great service

Best Regards

Isaac

Comment by Vahid
2009-01-27 08:13:50

Hi Isaac,

Thanks for your comment.

I have another article about stop loss setting. I think it can help you:
http://www.forexoma.com/where-is-the-best-place-for-stop-loss-and-limit-orders/

Best regards,
Vahid

 
 
Comment by Ad
2009-01-28 19:51:03

What is the advantage of trading forex over e-mini futures? Does the forex trend more consistently/less noise?

 
Comment by z4wil
2009-02-02 20:52:07

Well, Heikin-Ashi is great visual tool :)

I still using this candle for my trade, and it’s better for GBP/JPY with triple time frame 5M-30M-H4…very good….!

 
Comment by jonathan
2009-02-07 21:26:01

Thanks a million times for ur wonderful teachings of the forex market, you must have been born with a forex chart from Japan, and so became d best teacher of forex since this 21st century, an award for u man? why not….. more power to your elbow. please how do i use the SMA40 that changes color for the next signal, mine does not change color at all. please help

Comment by Vahid
2009-02-08 10:27:03

Hi Jonathan,

Thanks for your attentions.

The regular moving averages we have in MetaTrader don’t change the color when they change the direction. You should use FX Snipper MA:
http://www.forex-tsd.com/indicators-metatrader-4/578-moving-average-8.html#post69014

Best regards,
Vahid

 
 
Comment by jonathan
2009-02-08 19:58:01

thank u very much

 
Comment by jonathan
2009-02-19 10:20:38

Please Vahid, where and how do i place my stop loss if trading with heiken ashi?

Comment by Vahid
2009-02-19 10:47:55

Hi Jonathan,

You have to use the candlestick chart to choose a proper place for your stop loss. Heikin Ashi is not suitable for that.

Best regards,
Vahid

 
 
Comment by john
2009-03-02 23:28:31

hi vahid i have read your articles and they r helpful but wat i havent understood which trade platform do u use cos i would like to use it too.another thing which technical indicator do u think gives the right signal?

 
Comment by Tariq
2009-03-04 16:09:12

Thanks vahid, really nice teaching about heikin ashi.GOD bless you for that nice work.Ameen.

 
Comment by kev
2009-03-26 01:31:16

Hi,

Great article, very illuminating.
I wanted to know if using the 30minutes chart with heikinAshi is good or is it a big time frame.
I normally use VT Traders HeikinAshi candles.

Thanks.

Comment by Vahid
2009-03-26 07:05:56

Hi Kev,

Thanks for your comment.

Heikin Ashi can be used in any time frame. It depends on you but you should consider that it is delayed.

Best regards,
Vahid

 
 
Comment by Misterplumber
2009-04-05 05:56:56

I believe there may be an error in #4 of your explanation of a H-A low.
Here what you wrote:

4- Low price: the high price in a Heikin-Ashi candle is chosen from one of the high, open and close price of which has the lowest value.
^
Shouldn’t this say low price?

Great Explaination otherwise.

Comment by Vahid
2009-04-08 10:53:27

Hello my Friend,

Absolutely! Thanks for your help. I already fixed it.

Best regards,
Vahid

 
 
Comment by Gary
2009-04-12 22:44:01

I have think or swim. It has fast, slow, and full stochastic charts with a K period, D period, and a smoothing. I have used every combination possible on all three using your 14, 7, 3 and cannot get a stochastic with two smooth lines like your sample shows. It also allows you several choices for what to use for high, low, and close. What number is for what period and what type of stochatic are you using?

Thank you.

 
Comment by Gary
2009-04-14 23:29:43

You mention the signals given by candlestick and Heikin Ashi candlesticks. Would you please describe what constitutes a signal by both charts? Thank you.

Comment by Vahid
2009-04-15 19:40:45

Hi Gary,

Some of the screenshots on this page include both ordinary and Heikin-Ashi candles:
http://www.forexoma.com/images/posts/forex2/heikin-ashi-5.png
http://www.forexoma.com/images/posts/forex2/heikin-ashi-6.png
http://www.forexoma.com/images/posts/forex2/heikin-ashi-7.png
http://www.forexoma.com/images/posts/forex2/heikin-ashi-8.png

The vertical lines we have on both candlestick, Heikin Ashi and also Stochastic show what kind of correlation we need on all of them to have a signal.

Best regards,
Vahid

 
 
Comment by Ron
2009-07-07 18:31:11

Great stuff sounds very interesting.I prefer use Fisher Transform as my indicator,it’s much cleaner and works well with Heikin Ashi charts,also to make up for the lag between candle and HA I will go down a timeframe on the HA say ,15m.Candle Charts and 10m. Heikin Ashi charts.Works perfect.

Comment by udhaya
2009-10-30 00:29:24

Hi Ron,

how can we use this fisher transform , where we can download this indicator

Thanks
Udhaya

 
 
Comment by Chu Van
2009-10-21 10:30:06

That’s great. Thanks for sharing!

 
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