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Heikin ashi, Japanese for “average bar”, is a technique using a special kind of candle stick bars for better visualizing price trends. This technique has been introduced by Dan Valcu in the February 2004 issue of Stocks & Commodities magazine.
The original calculation of the heikin ashi candle stick is as follows:
xClose = (Open+High+Low+Close)/4; or the average price of the current bar
xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2; or the midpoint of the previous bar
xHigh = Max(High, xOpen, xClose); the highest value in the set
xLow = Min(Low, xOpen, xClose); the lowest value in the set
However, since the xClose component is always less than or equal to the High component, it is redundant within the MAX function of xHigh and a modified xHigh can be defined as:
modified xHigh = Max(High, xOpen);
The same reasoning is valid for the xLow function:
modified xLow = Min(Low, xOpen);
Next I calculate the average heikin ashi closing price as the result of:
You can use the following MetaStock® formula to calculate
the heikin ashi closing price (SVE_haC):
haOpen:=(Ref((O+H+L+C)/4,-1) + PREV)/2;
The heikin ashi average colsing prices compared to the real closing prices.