What is Heiken Ashi? Candlesticks Explained

Trading the stock markets is becoming an increasingly popular way for people to make money, particularly from the comfort of their own homes. With this kind of trading, there are certain techniques of prediction that you can use, one of which is heiken ashi. Heiken ashi is a variety of chart formulated to predict the stock market. These charts are similar to candlestick charts, which are fundamentally bar charts that portray price movements. Heiken ashi charts come from Japan, and they are slightly more in-depth than the average candlestick chart. With heiken ashi there are a range of calculations made instead of just the one, which is thought to provide better predictions and more accurate numbers.

Heiken ashi charts are praised for making it simpler to predict upcoming changes in the markets by allowing traders to better comprehend the reasons for these changes and why they occur, such as the psychological condition of those who invest in the market. It may seem like a complicated undertaking to try and understand psychological effects, however it is actually quite straightforward. These can be a result of national or international events such as recessions or wars, or even natural disasters. The way in which investors are thinking and feeling will have an effect on the decisions they make, and the financial and worldwide environment can also have a huge say in these decisions.

The format of a heiken ashi chart resembles the shape of a candlestick, with rectangles that have thin lines (or wicks) sticking out at either end, so it is not too difficult to recognise them. There are four numbers in a usual chart, these are open, close, high and low. In a traditional candlestick chart these are singular and do not relate to each other. But in a heiken ashi chart the numbers are interconnected, in essence one number will play a part in determining the next. Basically, the average is derived in order to come up with the trends for the chart, which coincides with what the name means in the original Japanese; average bar.

There are a number of formulas used in calculating the charts, four in all. Any traders, whether they are experienced or beginners, will do well to look these up and take the time to understand them. The calculations are what provide traders with the data they wish to analyse. Therefore, having a basic grasp of them will enhance the ability of a trader to successfully interpret a heiken ashi chart.

There are certain things to look out for when analysing a heiken ashi chart, for example, traders will know there is a strong uptrend when they see a hollowed out 'candle' with a shadow on the upper part. Changing trends can be identified through a smaller candles with shadows on the top and bottom parts. In contrast with a hollow candle, those that are full show that a trend is going down instead of up.

Heiken ashi charts, when studied correctly, can greatly enhance your performance as a trader.