Heikin Ashi (HA) chart is one of the trading chart types. This chart is originated in Japan. Similar to the candlestick chart, the color of this chart denotes the price moving direction.
The biggest difference between the HA chart and candlestick chart is in the average price moves. In the HA chart, the average price has smoother movement due to the price bars in this chart are averaged. Thus, in a specific period, the chart does not show the exact open and close prices.
Traders usually use this chart as the additional confirmation of the current trend direction. HA chart functions as the technical indicator on a candlestick chart. It provides highlights and clarifies the ongoing trend.
This chart is popular among swing traders. They usually use this chart independently from
The Calculation
HA charts make the price activity smoother by calculating average values. It calculates its own high (HAH), open (HAO), close (HAC), and low (HAL) by using the actual open (O), high (H), low ((L), and close (C) from different time frame (one minute, five minute, 15 minute, etc.
Below is the formula for each calculation.
HAO = (Open of previous bar + Close of previous bar) / 2
HAC = (Open + High + Low + Close) / 4
HAH = Highest of High, Open, or Close
HAL = Lowest of Low, Open, or Close
Each price bar in this chart requires a mathematical formula. Consequently, traders will not know the exact price at a specific period of opened or closed.
This can be an issue for day traders since they need to know the exact price, especially if they trade off a chart. But for traders with a longer time frame, this should not be a big problem.
The Advantages
The biggest advantage of this chart is its smoother looking. That helps traders identify the trending direction easily.
Besides, it also uses color code, like a candlestick. The bars show up as green if the price is rising and the bars show up as red as the price is falling.
Also read: Trading with Flag Chart Pattern
