How To Read Heikin-Ashi Candles - Differences Explained

8/6/23, 10:11 AM How to Read Heikin-Ashi Candles | Differences Explained
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07 2023.
Heikin-Ashi candles provide a simple
method to incorporate averaging into

price action analysis by making
candlesticks themselves averaged. This
causes candles to have a smoothened

and continuous look making them
them better to visualize trends.
Both traditional candlesticks and

2
Heikin-Ashi candles are constructed
using the open, close, high and low

prices. The main difference between
them is that Heikin-Ashi candles are an
averaged version of traditional
candlesticks that uses also the data of
the previous bar to produce the current

candle's open price.
In every platform the colour coding of

Heikin-Ashi candles can change, so
instead of providing you a standard
approach do the following to find out

which one is being used:
Open your trading platform and

apply Heikin-Ashi candlesticks to
your chart (if you don't have a
https://thetradingbible.com/how-to-read-heikin-ashi-candles 1/13
trading platform, visit our broker

centre to find one you like)
Spot a clear uptrend and note the

colour or type of candle being used
(it can be empty candles, green
candles, blue candles)
Spot a clear downtrend and note
the colour being used (it can be red

candles, black candles, etc)
Now you know which colour coding

your trading platform uses to represent
Heikin-Ashi candlesticks.
Heikin-Ashi Candles
Explained
Just like a simple moving average

does, the main objective in a Heikin-
Ashi candle is to smoothen out the
price volatility we're used to see in
traditional Japanese candlestick charts
and this makes them a great tool to
detect trends in an easier way.
2
A very common Heikin-Ashi behaviour
is:
Candles staying green during

uptrends
Candles staying red during

downtrends
Also, the size of each candle tends to
be associated with the strenght of the

movement just like in regular
candlesticks.
A long green candle is an

indicator of strong bullish forces
A long red candle is an indicator

of strong bearish forces
This behaviour is not something that

can be particularly attributed to Heikin-
Ashi candles. In traditional candlestick
charts a long green candle also means
strong bullish pressure, it's a matter of
not memorising candle codes, patterns
or styles but rather looking at them

and asking yourself this question: How
could a candle have becomed long and
green?
By buyers excercising a larger

pressure over sellers and pushing
prices up
By sellers removing limit orders

in expectations of prices climbing
Always remember, the best way to

analyze a chart is by thinking and
trying to make sense of the price
action through logic. Candles don't
have behaviour themselves, they're
merely a visual representation of the
actions of buyers and sellers so what
we really care about is how buyers and
sellers are behaving. In the case of

2
Heikin-Ashi candles they are an
averaged representation of this
behaviour.
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Heikin-Ashi Formula
and Calculation
Here is the formula used to calculate
each Heikin-Ashi candle's value:
Open: The previous bar's open
price plus the previous bar's close 2
price divided by two.
Close: The current candle's open,
close, high and low prices added and
divided by four.
High: The highest value amongst

the open, close and high values of
your current bar.
Low: The lowest value amongst
the open, close and low values of

your current bar.
Here's a visual representation of the
formula:
To create one Heikin-Ashi candle, we
require trading data (Open, High, Low

and Close) for two continuous bars as
the formula creates an average of the

previous bar's data to calculate the
candle's open price.
Below are the sample numbers we'll

use to manually calculate one Heikin-
Ashi candle:
Calculating Heikin-Ashi
Candle Open Value
To calculate our Heikin-Ashi candle's
open price we need to:
Add together the previous bar's
open price and the previous bar's

closing price
Divide the result by 2 (a simple

average calculation). In case you're
wondering why in the formula it's
written like a fraction 1/2 you could

also manually divide 1 by 2 which
equals 0.5 and then multiply it by

the number between the
parenthesis which you obtained by

adding the previous bar's open and
closing prices, you'll arrive to the

same result.
The result is 13.5
Candle Close Value
close price we need to:
Add together our current candle's

open, close, high and low prices.
Divide them by 4 (another simple

2
average calculation).
The result is 18.
Candle High Value
highest price we need to:
Look at our current candle's
open, close and high values.
Choose the highest of those
numbers, in this case, 20.
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Candle Low Value
lowest price we need to:
Look at our current candle's

open, close and low values.
Choose the lowest of those
numbers, in this case, 16.
Plotting our Heikin-Ashi

Candle in a Chart
After calculating manually each value,

we obtained the following results in our
Heikin-Ashi candle example:
Open: 13.5
Close: 18
High: 20
2
Low: 16
To visualize our new Heikin-Ashi data
on a chart then we proceed to:
Draw the body of the candle

using the open and close values.
Draw the wicks using the high
and low values.
A very interesting point to note about

Heikin-Ashi candles is that sometimes,
the low value or the high value can be
located inside the body of the candle
so there is no visual representation of
it by looking at the chart.
In our example the lowest of the
candle was $16 yet the open of the
candle through the averaged

calculation was $13.5, this will cause
wicks to be hidden in many cases.
Heikin-Ashi Candles Vs.

Regular Candlesticks
Heikin-Ashi candles provide a smooth
averaged version of price action in a

chart whereas traditional candlesticks
include the noise of major price
changes. Regular candelsticks present
a raw version of the open, close high

and low prices of a particular bar and
Heikin-Ashi candles present an
averaged version that is dependent on
always having the previous candles

2
data to calculate the current one.
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Chart
The below chart is made of traditional

candlesticks. Notice that when the
asset's price reaches 41.000 (Y-Axis)
at hour 10:00 (X-Axis) how a
downtrend starts yet during the
descent there are many green

candlesticks on the way. This is exactly
the problem with traditional candlestick
charts. There is no way to reduce the
noice and clearly see what is

happening.
The below chart is made of Heikin-Ashi

candlesticks. Notice in comparison to
the traditional candlesticks chart the 2
continuity of candles grouped by the
same colour is much more uniform.
On a Heikin-Ashi chart it's far more
easy to visualize when an asset's price
is climbing or falling as all the

continuous candles tend to have the
same colour.
The alternation happens when there is
a clear potential direction change.
To finalise our comparison here you

have an animated overlay of Hekin-
Ashi candles on top of traditional
candlesticks. It will give you a good
idea of the effect of changing between
each candle's style.
Overall the structure of the chart is not
that different, the main change lies on
the continuity of same coloured
candles when there is trending

behaviour.
Conclusion
In a regular candlestick chart it's
common to see both red and green
candlesticks as the trend develops
itself regardless if it's bullish or bearish.

2
In Heikin-Ashi candle charts the colour
of the candles tends to look more
uniform depending on whether you're
visualizing a bullish or bearish trend,

there lies the power of averaging.
A very important point to remember
about Heikin-Ashi candles is that

traders should never make the mistake
of entering a trade assuming that the
last price of the candle is the current
market price. Always remember that
Heikin-Ashi candles are producing an

averaged version of the open, close,
high and low values, this means that
you're never looking at the current bid
and ask prices.
Heikin-Ashi candles are best used in

combination with the most basic
methods of price action analysis, which
are:
Determining key support and
resistance and levels
Visually determining if the market
is trending or not (drawing trend
lines)
Contrary to popular belief, there is
nothing magic or special about Heikin-
Ashi candles, they're merely an
averaged version of traditional

candlesticks which allow you to reduce
the noise caused by volatility in your
chart without using any external
indicators.
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8/6/23, 10:11 AM How to Read Heikin-Ashi Candles | Differences Explained

Brokers Learn About EN Start Trading

Trading Guides Technical

FP Markets Join our

Heikin-Ashi Stay up-to-date with our trading

Differences Email Address

By Stefano Treviso , Updated on: Apr We respect your privacy. Unsubscribe at

Heikin-Ashi candles provide a simple

method to incorporate averaging into

causes candles to have a smoothened

Both traditional candlesticks and

using the open, close, high and low

the previous bar to produce the current

In every platform the colour coding of

approach do the following to find out

Open your trading platform and

trading platform, visit our broker

Spot a clear uptrend and note the

Spot a clear downtrend and note

the colour being used (it can be red

Now you know which colour coding

Just like a simple moving average

Candles staying green during

Candles staying red during

Also, the size of each candle tends to

be associated with the strenght of the

A long green candle is an

A long red candle is an indicator

This behaviour is not something that

or styles but rather looking at them

By buyers excercising a larger

By sellers removing limit orders

Always remember, the best way to

sellers are behaving. In the case of

74.34% of retail CFD accounts lose money.

Brokers Learn About MetaTrader

76.27% of retail CFD accounts lose money.

Here is the formula used to calculate

each Heikin-Ashi candle's value:

Open: The previous bar's open

price plus the previous bar's close 2

price divided by two.

Close: The current candle's open,

close, high and low prices added and

High: The highest value amongst

your current bar.

Low: The lowest value amongst

the open, close and low values of

Here's a visual representation of the

Brokers Learn About EN Start Trading

To create one Heikin-Ashi candle, we

require trading data (Open, High, Low

the formula creates an average of the

candle's open price.

Below are the sample numbers we'll

To calculate our Heikin-Ashi candle's

open price we need to:

Add together the previous bar's

open price and the previous bar's

Divide the result by 2 (a simple

written like a fraction 1/2 you could

equals 0.5 and then multiply it by