WHAT IS THE HEIKEN-ASHI CHART?
Most profits (and losses) are generated when markets are trending--so predicting trends correctly can be extremely helpful. Many traders use candle stick charts to help them locate such trends amid often erratic market volatility. The Heikin-Ashi technique--"average bar" in Japanese--is one of many techniques used in conjunction with Candlestick Charts to improve the isolation of trends and to predict future prices.
Calculating the Modified Bars
Normal candlestick charts are composed of a series of open-high-low-close (OHLC) bars set apart by a time series. The Heiken-Ashi technique uses a modified formula:
xClose = (Open+High+Low+Close)/4
o Average price of the current bar
xOpen = [xOpen(Previous Bar) + xClose(Previous Bar)]/2
o Midpoint of the previous bar
xHigh = Max(High, xOpen, xClose)
o Highest value in the set
xLow = Min(Low, xOpen, xClose)
o Lowest value in the set
Constructing the Chart