Heiken Ashi in Japanese means “Average Bar” – The average price bar. It is very good at data analyzing without variable power. Developed from the Basic Japanese Candlestick chart, Heiken Ashi’s high, low, opening, and closing prices are all adjusted through the average formula. The object of applying the formula is Japanese candlesticks charts. Specifically, the formulas are as follows:
Heiken Ashi candlestick chart makes it easy to identify price trends. A UP candle without a lower shadow shows a strong uptrend, whereas a DOWN candle with no upper shadow identifies a strong downtrend. Reverse analysis techniques are still applicable to Heiken Ashi candles without any problems. There will be no gaps in the Heiken Ashi Candlestick Chart because they are created by averaging the information of the previous candle.
Heiken Ashi candlestick technique reduces noise signals when the market is equilibrium with little volatility. Help traders avoid trading in this zone. Especially the noise of Gap, making the price unsuitable for analysis tools. By means of averages, it reduces unnecessary fluctuations, giving information about the mean for easier analysis.
Because Heiken Ashi candles reduce noise between 2 consecutive candles, you can easily spot trends, reversals, and patterns more easily. Basic Japanese candlestick charts often have empty spaces(gap), with continuous ups and downs, making them difficult to analyze. Because Heiken Ashi reduces noise resulting in more candles of the same color, it makes it easier to spot short-term fluctuations in the past.
Difference between Heiken Ashi and Renko
Heiken Ashi chart uses an average formula based on the information of two adjacent candles. Meanwhile, Renko charts only show clearly sized movements. Renko chart has box shapes that are not controlled by time, but only follow up and down movements. About Heiken Ashi, it will form a new candlestick every fixed period, unlike Renko, which only creates a new block when the price has moved a certain amount.
Limitations of Heiken Ashi candlestick chart
Not suitable for Swing
Heiken Ashi technique uses the information of two adjacent sessions for analysis, so it is often used for longer-term trading. They are not suitable for Traders who prefer Swing trading. Even so, Traders still have to make immediate moves even though Heiken Ashi is not enough timely response. Just trade a little and you will notice it.
Average data does not respond to volatility, and sometimes you can miss out on a lot of information so the response is not in time. The closing price per session is valued by many traders, but the actual closing price is not seen on the Heiken Ashi chart.
In order to avoid risk, in fact, the trader must take the actual price in order to Take Profit and Stop Loss in time. Most of the Traders still apply Japanese Candlesticks in parallel with Heiken Ashi Candlesticks.
There is no Gap
For some traders, they use the Gap to analyze momentum, set stop loss, or trigger entries. This is an important factor in technical analysis, so some traders prefer the original data.
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