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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.
standard candle chart and below the heikin ashi candle chart

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.

Good smoothing effect of the heikin ashi closing price average

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.

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

Stocks Technical Analysis Indicators Next -Previous -Part 1 -Part 2 -Part 3 -Part 4 -Part 5

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