What it is
Heikin Ashi, Japanese for average bar, is a way of smoothing candles. Each Heikin Ashi candle uses averages of the current and previous candle, so the noise of single candles is filtered out and trends show as long runs of the same colour.
The drawback of switching the whole chart to Heikin Ashi is that the prices shown are not real traded prices. The overlay keeps your real candles and adds the Heikin Ashi trend colour as a line on top, so you get the smoothing without losing true prices. WickSpeak also offers Heikin Ashi as a full chart type.
How it is calculated
1. Heikin Ashi close = (open + high + low + close) divided by 4. 2. Heikin Ashi open = (previous Heikin Ashi open + previous Heikin Ashi close) divided by 2. For the first candle, it is (open + close) divided by 2. 3. If the Heikin Ashi close is at or above the Heikin Ashi open, the candle is rising and the line is drawn blue; otherwise falling and drawn pink.
How to read it
How to trade it
- 1
On a 1 hour gold chart, only look for buys while the overlay is blue and price is above a slower average.
- 2
After a short pink spell in an uptrend, buy when the overlay turns blue again on a closed candle.
- 3
Place the stop below the low of the pink pull-back, often 8 to 15 points on 1 hour gold.
- 4
Stay in while the line stays blue; exit on the first close where it turns pink, or at 2 times the stop.
- 5
On US30, use the same in reverse in a downtrend.
A buy taken on a return to blue is proved wrong if the overlay turns pink again and price closes below the pull-back low.
WickSpeak runs in your browser with nothing to install. When you add the Heikin Ashi overlay, it writes a plain-English reading on the live candle: what the indicator is, what it is doing right now, how to trade it and what would prove that reading wrong. It says which colour is showing, how many candles the current run has lasted, and whether the line is flattening.
Heikin Ashi is also one of WickSpeak's 16 chart types, so you can switch the whole chart to Heikin Ashi candles. The overlay is a drawing on the chart and is not one of the indicator conditions in Playbook.
Best markets and timeframes
Works on any market. Most useful on 15 minute to daily charts of trending markets such as gold and US indices.
Common mistakes
- Treating Heikin Ashi values as real prices for entries and stops.
- Expecting early signals; the smoothing makes colour changes lag.
- Trading every colour flip in a range.
Works well with
Questions traders ask
What is the Heikin Ashi formula?
The Heikin Ashi close is the average of the open, high, low and close. The Heikin Ashi open is the average of the previous Heikin Ashi open and close. The high and low are the extremes of the real high, low and those two values.
Are Heikin Ashi candles real prices?
No. They are averages, so the open and close shown are not prices that actually traded. That is why an overlay on real candles is useful.
Is Heikin Ashi good for day trading?
It helps you stay in trends and ignore small pull-backs, but it reacts late at turns. Many day traders use it with a level or momentum tool for timing.
What is the difference between the overlay and the Heikin Ashi chart type?
The chart type replaces your candles with Heikin Ashi candles. The overlay keeps your real candles and draws the Heikin Ashi close on top as a coloured line.