Your Ultimate Guide to Trading with Heikin Ashi Candles

heikin-ashi-cover

Have you ever been riding a trend, then been spooked out of a position because it seemed like price was going to turn against you – only to see the trend continue another 300 pips?

Maybe you’re having trouble spotting the main trend, or market reversals?

Heikin Ashi candlesticks may be of interest to you, they can help with: trend analysis, pinpointing key reversals, and enhancing your exit strategy.

Heikin Ashi candlesticks are another clever invention from the minds of great Japanese traders. I’ve been a fan of these modified candlesticks for most of my trading career, but I feel they are rarely spoken about or used to their full potential.

They are a lesser known customized form of price action – but building in popularity, providing traders a new insight into technical analysis.

These bad boys can be used with any market on any time frame.

In this guide, I am going to walk you through how Heikin Ashi charts work, and how these customized candlesticks can give you a different unique perspective and perhaps change the way perform your chart analysis…

 

The Anatomy of a Heikin Ashi Candle

ha candle antomyTranslated from Japanese, Heikin Ashi means ‘average bar’ and you will see why.

They are the result of applying some average math directly to the candlestick structure.

One main goal of Heikin Ashi candlesticks is to eliminate noise on the chart. This is achieved through the way the Heikin Ashi charts are built through the equation.

The ‘formula’ for their construction is designed to creates a ‘smoothing’ effect – filtering out the irrelevant moves, while maintaining the display of the dominant price action.

Heikin Ashi candlesticks requires data from the previous HA candle, meaning they essentially build off one another. It is this chaining effect that gives a really unique view into the market.

The classic candlestick we’re all used to has a high, low, open, and close price. These figures are taken directly from the raw price action.

Heikin Ashi candles have the same 4 data points, but they each have some unique math behind them – which is important to understand if you’re going to use them.

  • High Price = highest price out of the current candle’s high, open, or close price
  • Low Price = lowest price out of the current candles’s low, open, or close price
  • Close Price = (open + high + low + close) / 4
  • Open price = previous candle (open + close) / 2

To summarize, the high and low prices are nothing special. The Heikin Ashi candle will just show the highest and lowest data point achieved while it was active.

What you will find in strong bullish conditions is that the open and low price are the same, and during bearish momentum, the open and high price are equal.

open prices syncing with momentum

When the open price syncs up with the high or low, you know you you’ve got some good market momentum.

open price example raw chart

You can see, when you compare the two charts together, how the Heikin Ashi chart helps filter out those counter trend movements and keep the dominant trend in display.

It’s the way open and close prices are calculated that gives this filtering effect.

The open price is derived from the previous candle’s open and close prices.

heiekin ashi open price construction

If you look at the formula carefully, it makes each new Heikin Ashi candle open in the middle of the previous candle’s body’s range.

heikin ashi candle open price mid way effect

One of the main reasons these charts looks so neat and orderly is the way the open price is being printed.

The close price is the other interesting aspect of the Heikin Ashi candlestick anatomy.

It takes all 4 data points of the candle, adds them together – then divides that figure by four to spit out an average price of all the candle data points.

ha close price formula

The close price is basically the average point of all the prices in the candle.

It’s important to understand that the close price also means the current candle price while the candle is active. When the candle closes, the last close price will be cemented in as the final close price.

Every time the market receives a new price tick, the Heikin Ashi formula is executed again, all the prices are recalculated and the candle anatomy is updated appropriately.

Checkpoint

Heikin Ashi are a unique kind of ‘average’ candlestick which build off one another to created a smoothing effect. This gives a new perspective of the price action, opening up the door for some unique technical analysis.

 

Benefits of Heikin Ashi Charts

There are many benefits a Heikin Ashi chart can provide to your technical analysis.

Obviously, the main purpose of these charts is to clean up the noise and display dominant trend strength.

a normal price chart

heiken ashi equiv

Notice how the Heikin Ashi charts prints out a lot smoother price action, helping draw out the main market movement.

Check out what happens during strong trending markets.

cruide oil price chart

cruide oil heikin ashi

Although the price chart is fairly easy to read, you can’t deny that the Heikin Ashi chart does a very good job at straightening out the market structure.

We can easily see where the core trend movement is and where the counter trend corrections are occurring.

Even the double bottom pattern looks a lot cleaner.

If you’re having trouble determining the trend, these charts could be a good aid for you.

They are also great for keeping you in a trend trade longer. It is common to believe price is moving against you, and find out you got spooked out by a counter trend retracement soon after.

I know there are a lot of traders who ‘cut their profits short’ in these scenarios.

Check out how Heikin Ashi charts may help with the psychological problem of ‘price moving against you’…

audcad bullish trend pa

audcad heikin ashi trend

This is one of the key advantages of HA candlesticks, the ability to ‘cut the crap’ when the market is trending.

Look how well of a job they did in the AUDCAD example above. You basically only see blue candles until the trend dies out, and then a larger red candle is printed.

Charts like these maybe just the thing you need to stop those early exits.

Reversals can be much easier to spot, especially with the classic ‘color change’ in the Heikin Ashi candles…

bullish color change

bearish color change

You can see that when the candles change dramatically from bullish to bearish, there can be a large follow through reversal.

Obviously it wouldn’t be profitable to trade every single color change because when the market falls into consolidation, you will get eaten alive.

These reversals tend to be more potent after a large bullish or bearish move has already occurred before leading into the color change signal.

Checkpoint

The filtering effect of Heikin Ashi candlesticks allows for a very clear view of the market structure and dominant trend movement. This allows traders to spot trends easily, ride them out longer to their full potential, and also spot reversal opportunities when they die out.

 

How to Read Heikin Ashi Candlesticks

So far, we looked at how the HA candlesticks can help provides a better visual experience for traders, and collectively help with market analysis.

Now lets dive into the individual Heikin Ashi candlesticks and learn how to read the individually.

  • If the body of the candle is bullish – it reflects a bullish environment.
  • If the body of the candle is bearish – it reflects a bearish environment.
  • If the body of the candle is thin, and there is wicks protruding out both ends of the body, the market is indecisive, has stalled, or is consolidating.

bearish ha bodies

bullish ha bodies

If a strong trend is underway, the candlesticks become a gauge to the current trend strength.

Remember the close price is the average of all the data points in the candle, so if the close price is very high, then you have strong bullish pressure in the market.

bullish pressure ha candles

Upper wicks will start to appear when the bullish momentum slows down, and more bearish pressure starts to enter the market.

Same obviously applies to bearish conditions. The candles will close lower into the candle range under strong bearish trends.

bearish pressure ha candles

Remember:

  • Big candle range + big candle body = Strong momentum
  • Small candle ranges + small candle body = Weak momentum

Because these candlesticks change drastically when the market conditions shift, it’s very easy to see when the markets fall into consolidation, when you don’t really want to be in the market.

heikin-ashi-condolidation

It’s fairly easy to spot dangerous market conditions with Heikin Ashi price action.

Try to stay out of the market when you start seeing doji like candles, especially large ones.

When these charts go into nasty sideways action, there will be a lot of candles with wicks coming out of both ends of the body – a warning sign to be on the side lines.

I always say, if you can’t make sense of the chart, then simply don’t trade it!

consolidation warning

The chart above shows how these charts can do a great job and displaying a the change in market conditions.

One Doji formation – a double wicked candle – was a warning sign of dangerous consolidation to come.

Like normal candlestick chart, Doji patterns are a reflection of indecision, consolidation or unstable volatility. The effects of Doji candles on HA charts are more emphasized.

Checkpoint

The HA candles change dramatically in appearance when price conditions change – making them an aesthetically easier chart to understand. Big body candles generally mean good trending strength, small double wicked candles generally mean bad trading conditions.

 

Warning: Heikin Ashi Candles Can be Visually Misdirecting

When you look at these charts, you will imminently think it is a gold mine. But we all know there is no free lunch 🙂

If you remember the calculations we went through before on how a Heikin Ashi is formed… you might have picked up that Heikin Ashi candlesticks don’t always reflect the current prices in the market.

In a normal candlestick, the close price is the current price in the market.

On a Heikin Ashi candlestick, the close price is an average of all the candle data. This means the close price of a Heikin Ashi candle is going to be different to the current market price!

eurusd actual price

As a trend develops, the Heikin Ashi candles really start to build momentum off one another as price is driven higher or lower – the spread between the actual market price and the HA price will expand dramatically.

I actually like this mathematical outcome because it punishes traders for buying too high and selling too low – which is a common problem for novice trend traders.

When the market settles down, the distance between real price and HA price will contract significantly.

audusd ha price vs real price

Notice how the prices are fairly aligned in the chart above. The trending conditions have stopped and the market is drifting sideways, allowing the market price to catch up with HA price.

Now when a trading opportunity occurs, you will be able to get in closer to the market bid.

Just remember, when you’re taking a Heikin Ashi trade, to check where the real market price is. This is important because you need the real market price to execute correct risk management calculations.

Checkpoint

Heikin Ashi charts can be misleading when compared to the actual price of the market due to the average math in the construction of these candles. The spread between HA price and real market price widens after strong momentum and contracts when the market stalls. This discourages buying the tops, and selling the bottoms.

 

How to Trade Heikin Ashi – Some Trade Ideas

Allow me to give you some ‘food for thought’ to get started with trading Heikin Ashi charts.

Traditional forms of technical analysis, and your classic chart patterns are still going to be relevant.

ha swing level

We can see above the classic swing level still being relevant. Look how well HA displays the ebb and flow off support and resistance levels.

ha double top pattern

Classic patterns like the double top, and the head & shoulders patterns can be easily spotted and traded as per your plan.

Consolidation breakouts are also easy to spot and work out well.

consolidation breakout trade

squeeze breakout

Whenever a Heikin Ashi candle closes outside of these consolidation structures, it is a good indicator that a breakout is underway.

It may even be beneficial to watch lower swing trade time frames to catch an intra-day HA breakout for an earlier entry – because you’ve always got to keep in mind the spread between the HA price and the real market price.

Another example of effective structure breakouts are simple trend line breaks.

Due to the market structure being easy to see with Heikin Ashi charts, trend lines are easier to mark. Watch for the break of obvious trend lines…

heiken ashi trend line break

These charts are also an excellent opportunity for trailing stops… especially during strong trends.

ha trailing stops

trail stop with uptrend

When the open price aligns with the high or low of the candle in a trend, this may the opportunity for you to trail your stop if you’re into that.

Trailing a stop behind the previous candle’s low or high may be a little aggressive – consider trailing the stop behind the high or low of two candles ago.

The stacking trend candles may also be used with scale in strategy, adding to your position as the trend develops.

Careful with this though – because the HA / Market price spread is going to increase as the trend develops, making it more difficult to scale in as the trend extends out.

Checkpoint

Heikin Ashi charts really open up the door for some unique strategies, while still maintaining use of classic technical analysis. Market structure and consolidation periods are simpler to spot. Therefore, breakout trades are more obvious. The structure of HA candles also open up the door for some clever money management strategies.

 

How to Get Heikin Ashi on MT4

heikin ashi on mt4 pluginMetatrader does not naturally support Heikin Ashi candles, to get them – you need custom plugins that will generate them for you.

Naturally there are free MT4 HA generators out there, but they can be annoying to use – and can be filled with annoying bugs.

Here is a free one if you want to test them out.

If you’re more serious about Heikin Ashi charts, you might be interested in my custom chart generator tool.

This cutting-edge panel allows you to customize your own charts for a unique view on price action – that includes custom tailored HA candles.

You can check out the info on the current chart generator here.

The second version of this panel will support Heikin Ashi, and is almost ready for release, here is a sneak peak…

mt4 chart generator panel 2.0

If you’re on my email list, I will shoot out an email to everyone when this is ready. It is proving to be a very powerful and convenient tool.

I hope this guide was helpful. Please leave me a comment below and let me know if it was, or just leave me your feedback or experiences with Heikin Ashi charts. I always look forward to reading your comments!

Stay safe and profitable out there! Best of luck on the charts this week 🙂

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56 Comments...


  1. osama comment display photo
    osama
    A helpful article. cheers Dale.

  2. Karl comment display photo
    Karl
    Brilliant. Thanks.

  3. Lord comment display photo
    Lord
    Hi Dale, Many thanks for the great work you've done. The stoff was easy and clear to understand. Well done. Get going. Lord .----.

  4. Alex McCullie comment display photo
    Alex McCullie
    Thanks, Dale. I find Heiken Ashi and, even, Ichimoku, both fascinating and mysterious offerings with potential market insights. I'll add your article to my collection of forex refernces. Good contribution!

  5. bijan comment display photo
    bijan
    It looks promising, thanks Dale for this wonderful article and looking forward to the others. Cheers

  6. David comment display photo
    David
    Hi Dale,Thank you for this really useful article. It fascinates me how many trading tools are Japanese - Renko bricks, Ichimoku clouds and many more - I think "ordinary" candles are derived from rice trading. I agree that some of the standard MT4 HA offerings aren't the most friendly tools to use. I will try your download. I am currently back-testing and dummy forward-trading Renko bricks in combination with Ichimoku and it is producing some very good results.

  7. Theo Courtriers comment display photo
    Theo Courtriers
    Dale, I signed up for your course at least 6 years ago. I loved what I saw and then I went on a spree of wanting more because enough was not enough and then I stumbled on a heikin ashi course that also included renko trading. That was it for me. I switched and loved every minute of every potential opportunity as advertised. I started seeing every heikin candle color change as an opportunity and started doing crazy things. I lost money galore. I finally came back to your website like the prodical son and started all over again with candlesticks and that is what I am using now with a few indicators. The main indicator being your PABS and I am loving it.I have placed my expensive heikin ashi course in an archive. My brain is now fully wired to see candlesticks. I am seeing the market clearer and making pips again. I am building my account again and best of all my trading is starting to become boring which means I can now start living the life I dreamed of as a forex trader with lots of time on my hands.
    1. Dale Woods comment display photo
      Dale Woods
      Hi Theo, thanks for coming home in the end :) I have scoped out the Heikin Ashi strategies being thrown around out there. Most of them are paired with indicators - which is going to straight away give you a system that lags a lot, because HA candles already are a little slow themselves due to the average math.I've got a few things I would like to test on these charts, but thanks for the feedback!

  8. Barry Lang comment display photo
    Barry Lang
    Anything that can simplfy trading must be a bonus....From " Dow Theory to Gann Theory and of course Elliot Wave Principals" trading can be complicated and as Gann said, if every trader just knew the 50% rule / theory he would be richer for knowing it... But how simple is this?...I have always wondered about Heinken- Ashi candles' but i have avoided them because of older trading principles...Thanks' Dale, as I will in the future employ such principals' within my trades'....And thanks' for the MT4 knowledge and the links' you provided..Regards

  9. Stevko comment display photo
    Stevko
    hi Dale, great! I always appreciate your detailed explanation.

  10. AndyB comment display photo
    AndyB
    2 thumbs up! Thanks for sharing your expertise Dale! :)Warmest RegardsAndyB

  11. austin comment display photo
    austin
    that was excellent i really like it cos it helps one alot in identifying an important moment.

  12. Martin comment display photo
    Martin
    Excellent article Dale - just a pity there's no mention of Heikin Ashi Smoothed, which I find another fascination feature of these candles (cuts out even more market noise).
    1. Dale Woods comment display photo
      Dale Woods
      I don't like them. Heikin Ashi charts are already an averaged candle. Smoothed Heikin Ashi charts are normal HA charts with even more average math pumped through them. Smoothed Heikin Ashi charts are very misleading, as they are printed way off the actual market price. You will probably get just as much out of them as a moving average.

  13. Tonino comment display photo
    Tonino
    newbie here. Enjoyed your article Dale. I have not yet put anything to the test as I am still reading the course. I want to take my time with your course and learn all the things that you offer us. And it looks like that these HA candles will have to be given a try. Thanks Dale.By the way Dale, if you ever win to much in one day I could do with some. lol

  14. TREVOR comment display photo
    TREVOR
    great food for thought,looks like you have done a lot of work on this DALE.congratulations .and thank you.

  15. Jason Roque comment display photo
    Jason Roque
    Is there Heiki Ashi mt4 on mobile?
    1. Dale Woods comment display photo
      Dale Woods
      I don't do mobile trading much, and most advanced charting is done on a computer - so it will be hard to find it on mobile.
    2. CalvinJugah comment display photo
      CalvinJugah
      hi Jason. just wanted to butt in here. I do plenty of mobile trading due to my nature of work. I use Trade Interceptor , you can get it from Play store for Androids. Since Trade Interceptor is my charting platform only, I just trade on my MT4 on Android. Hope this helps.

  16. Douglas comment display photo
    Douglas
    Thank you Dale. VERY INFORMATIVE!!

  17. Neville comment display photo
    Neville
    Very very informative and interesting. Thank you for going to the effort of describing this. I am most grateful.

  18. stephanus sugama comment display photo
    stephanus sugama
    thank you......

  19. john comment display photo
    john
    Thanks another good article.

  20. Russell Weiss comment display photo
    Russell Weiss
    Russ Weiss May30,2016 Best explanation of HA I've come upon. Thanks. Any help on trading HA would be greatly appreciated.

  21. Yan Naing comment display photo
    Yan Naing
    Thanks for your effort. I would like to know your trading strategy that you are doing now.

  22. Howard comment display photo
    Howard
    great explanation of HA, thank you Dale

  23. Rgsh comment display photo
    Rgsh
    Nice post thnx

  24. Raju comment display photo
    Raju
    very easily explained.. thank your very much. i will use these candles in Indian market.

  25. Kenneth comment display photo
    Kenneth
    Thank you for the information and a wonderful site you have here. I am trading with the Genesis Matrix system with uses these candles. I will be visiting your site quite often.

  26. Frederic comment display photo
    Frederic
    Hi, love this guide! So detailed. Just wanna clear something. So the longer the wick compare to body, the slower the momentum? So does that means a full body show strong momentum?

  27. K comment display photo
    K
    Just found your site Dale. Thanks for the great explanation of HA candles. Do you use them? Most of your training deals with normal candlesticks and not HA. When using HA, do you recommend switching back to normal PA to find good entry/exit location/price?

  28. Manjit Singh comment display photo
    Manjit Singh
    Brilliant, easy and clear to understand Thanks.

  29. Terry Smith comment display photo
    Terry Smith
    First read through was very interesting, I am sure that as I get a bit more of a grip it will all start to make some really useful sense. Looks very useful, informative and I can't wait to read it all again!!!Many thanks.Terry Smith

  30. Dr SS Sharma comment display photo
    Dr SS Sharma
    Thank You! I have been trading HA for quite some time. I have been ok with my trades, and this has helped my trading tremendously.Please, dear friends, be very very reminded of these: 1) HA Candles are Lagging candles 2) Always check with your regular candlestick charts for current price, targets, stop loss 3) HA is only to show if you are able to sustain or stay i the trade 4) DO NOT trade the HA alone in its own context.

  31. Maxwell comment display photo
    Maxwell
    Nice one Dale. Am new to forex trading and your article is useful. Your explanation is clear and simple. Cheers

  32. Lars comment display photo
    Lars
    Great article,Dale. Very informative. The HA turn trading into a song. I had no idea about the diff in the spread, but that makes sense considering the HA was designed to prevent trading against the trend, and the spread is the fix. Smart. With that as the only "disadvantage" - I will continue trade regular candles and use the HA as an indicator on the same chart. I have come to learn cross-overs from a 14 periods stochastic, D: 7 and K:3 as an added measure for confirming entry/exit.

  33. Kuhan comment display photo
    Kuhan
    Your write ups are fantastic buddy. Thanks a lot

  34. David Caple comment display photo
    David Caple
    Dale, I'm not doubting your citing of the formulae for the HA High and Low but I am confused by them! You (and everybody else) quote them as ...High Price = highest price out of the current candle’s high, open, or close price Low Price = lowest price out of the current candles’s low, open, or close price... but in what circumstances with the Open or Close ever be higher than the High or lower than the Low? By definition the High is the highest price and therefore Open and Close can never be higher and Low is the lowest price and Open and Close can never be lower! Am I missing something?
    1. Dale Woods comment display photo
      Dale Woods
      Well observed, but I am just quoting the original formula. But you're correct in saying that we really only need to concern ourselves with the high or low prices. There are conditions where the open or close price can be the same as the high or low price also - it's just a technicality though.

  35. Richard Sawford IEng MIET MAIPM comment display photo
    Richard Sawford IEng MIET MAIPM
    Very helpful. I am new to trading so this helps in my steep leaning curve. Thank you

  36. Paulo comment display photo
    Paulo
    thank you Dale

  37. Pankaj Kumar Laskar comment display photo
    Pankaj Kumar Laskar
    Nice article!! Would like to receive a copy if permissible please.Thanks!!

  38. Rodrigo Reis comment display photo
    Rodrigo Reis
    Excelente!!

  39. Doc comment display photo
    Doc
    Great, easy to understand, explanation of HA

  40. Jagdish patel comment display photo
    Jagdish patel
    Nice and very informative Explanation ..... Thanks

  41. Steve Hudson comment display photo
    Steve Hudson
    I found your article most informative. I have only started looking into them after reading a book on trading the S&P 500. The author advised using HAs on the 30 minute time frame to look for entry points. I thought the HA candles looked 'smoother' than the regular ones but I didn't know how to interpret them. The part in your article about the candles with the same open and high/low prices and no wicks was most helpful. Thanx for the info.

  42. Vipul Srivastava comment display photo
    Vipul Srivastava
    Very Good article.Explained almost everything about HA chart and all indicators.

  43. DAVID ROBINSON comment display photo
    DAVID ROBINSON
    This is very fascinating indeed.Thanking you for all the effort you have taken to explain all these points to us all. However i am a little confused regarding entry points,to a degree. While everything does appear to be much smoother and pleasing on the eye. I somehow cannot comprehend or grasp a correct entry point at the minute. Am i to take it that the market price is the true price to enter on a new candle opening being as the previous closed candles highs,lows and closes are averaged and not a true reflection on price. I am sorry if i do appear to be totally confused,but to be fair i do grasp it and it appears easier to trade. For some reason it is certainly a better concept but i appear to be totally missing something,it appears far easier and pleasing on the eye yet my mind is a blank figuring entries. Appreciate your thoughts when you have time. Many ThanksRegards Dave Robinson

  44. Balazs comment display photo
    Balazs
    Nice thoughts on trading Heikin-Ashi charts. Pretty detailed and well illustrated article. Keep up the good work!

  45. Yaakov Markos comment display photo
    Yaakov Markos
    Very good explanation , I will try to see how it will work. Thanks

  46. Zebrasky Mcdonald comment display photo
    Zebrasky Mcdonald
    I have falling in love with heikin ashi. Now it's time to master it. My question is what timeframe are the heikin ashi candles best traded on

  47. Peter Paul Acholonu comment display photo
    Peter Paul Acholonu
    Good job but which time Frame do you use all the time for heinkin Ashichart

  48. Peter Paul Acholonu comment display photo
    Peter Paul Acholonu
    what time frame is recomended for the heikein Ashi charts

  49. Horst comment display photo
    Horst
    Great article, very helpful, cheers Horst

  50. TOny Biasillo comment display photo
    TOny Biasillo
    very good explanation thank you

  51. rambabu comment display photo
    rambabu
    wonderful guidelines for the freshers.we thank you a billion.
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