Stocks Technical Analysis Indicators Part 3

Heikin-Ashi Price Bars

Heikin-ashi, Japanese for “average bar,” is a technique used to better visualize price trends by recalculating candlesticks. (Dan Valcu [2004]. “Using the Heikin-Ashi Technique,” Technical Analysis of STOCKS & COMMODITIES, Volume 22: February 2004).

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Calculating the New Candle

• HaClose = (Open+High+Low+Close)/4
       = the average price of the current bar
• HaOpen = [HaOpen(previous bar) + Close(previous bar)]/2
       = the midpoint of the previous bar
• HaHigh = Max(High, HaOpen, HaClose)
       = the highest value in the range
• HaLow = Min(Low, HaOpen, HaClose)
       = the lowest value in the range
  

Heikin-Ashi Chart

The heikin-ashi chart is a candle chart based on the recalculated values for open, high, low, and closing prices, but with a different interpretation.

Figure 5.10: At the top the standard candle chart and below the heikin-ashi candle chart.

At the top of figure 5.10, the standard candle chart, based on the real open, high, low, and closing prices. Below, the heikin-ashi candle chart, based on the re-calculated prices for open, high, low, and closing prices.

Interpretation of heikin-ashi candles:

Sce-nario	Trend behavior	Actual trend
		Uptrend	Down trend
1	Normal trend	Up-moving white bodies	Down-moving black bodies
2	Strong trend	Up-moving white bodies without a lower shadow	Down-moving black bodies without an upper shadow
3	Weakening trend	Bodies are getting smaller; lower shadows are appearing	Bodies are getting smaller; upper shadows are appearing
4	Consolidation	Small bodies with upper and lower shadows	Small bodies with upper and lower shadows
5	Trend reversal	Small bodies with big upper and lower shadows (not always reliable)	Small bodies with big upper and lower shadows (not always reliable)

heikin-ashi Candles in MetaStock®

In MetaStock, it is not possible to create an indicator that will result in more than one data item displayed on a single bar. For heikin-ashi candles, however, you need four data items displayed on the same bar.

If you really want to use heikin-ashi candle charts, it is best to buy conversion software that can automatically convert the data and then create a mirror of the data in heikin-ashi format.

 

“HeikinAshi4MetaStock” is a shareware program that does this; it is easy to find on the Internet.

 

In our LOCKIT application, we only use the average of the heikin-ashi closing price because it has a very good smoothing effect without lag, as you can see in figure 5.11.

 

Figure 5.11: Good smoothing effect of the heikin-ashi closing price average.

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HA_C Calculation formula for the average heikin-ashi closing price:

{haC}
haOpen:=(Ref((O+H+L+C)/4,-1) + PREV)/2;
haC:=((O+H+L+C)/4+haOpen+Max(H,haOpen)+Min(L,haOpen))/4;
haC

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