How to Trade Heikin-Ashi Candlestick Price Action Profitably

Most of traders are only familiar with three popular basic chart types; - line chart, bar chart, and candlestick

chart. However, there is another underrated chart that you should learn. Heikin-Ashi candlestick, means

“average bar” in Japanese and DO NOT confuse with Normal candlestick. Even though Heikin-Ashi has same

characteristics as Normal candlestick, but it has different value for ‘Open’, ‘High’, ’Low’ and ‘Close’ of normal

candlestick.

The Different between Normal Candlestick and Heikin-Ashi Candlestick

Figure 1 Normal Candlestick

Figure 1, show how normal candlestick looks like. Normal candlesticks price action are great when you looking

into swing trade or potential reversals and breakout trade or continuation trend. For example shooting star and

marubozu. However, sometimes it’s make trader confuse and panic especially for new trader.
 Figure 2: Heikin-Ashi candlestick

Figure 2 above, show how different Heinkin-Ashi candlestick is look. Although it has body and wick (shadow),

the Open for body always in middle of previous candle and sometimes there are only one wick either upper or

lower. As you can see, the chart pattern is same for both candlestick but Heikin-Ashi are less market noise and

more smooth compare to normal candlestick.

What make Heikin-Ashi is great compare to normal candlestick? Normal candlestick frequently change from

red to green or others way which make traders to panic and loss their confident level. At the same time, more

mistake they will make. While, Heikin-Ashi show more consecutive candlestick color indicate the price is

trending and helping traders to identify the direction of price easily. Other than that, we can use it any level of

price to trade compare to normal candlesticks, that we often to use it at Resistance or Support level.
How Heikin-Ashi Calculated?

Figure 3: Value for Normal and Heikin-Ashi candlestick

Figure 3, show how different its value compare to normal candlestick. The calculation for Heikin-Ashi Candlestick is

as below:

1
𝐶𝑙𝑜𝑠𝑒 = (𝑂𝑝𝑒𝑛 + 𝐶𝑙𝑜𝑠𝑒 + 𝐿𝑜𝑤 + 𝐻𝑖𝑔ℎ)
4

1
𝑂𝑝𝑒𝑛 = (𝑂𝑝𝑒𝑛 𝑜𝑓 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝐵𝑎𝑟 + 𝐶𝑙𝑜𝑠𝑒 𝑜𝑓 𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝐵𝑎𝑟)
2

𝐻𝑖𝑔ℎ = 𝑀𝑎𝑥(𝐻𝑖𝑔ℎ, 𝑂𝑝𝑒𝑛, 𝐶𝑙𝑜𝑠𝑒)

𝐿𝑜𝑤 = 𝑀𝑖𝑛(𝐿𝑜𝑤, 𝑂𝑝𝑒𝑛, 𝐶𝑙𝑜𝑠𝑒)

Type of Heikin-Ashi Candlestick Price Action

Heikin-Ashi candlestick is simpler than normal candlestick. You only need to understand the three basics type of Heikin-

Ashi :-

 Buy or Sell signal

 Ranging or Reversal signal

 Start off New Trend or Continuation signal

Buy or Sell signal

No upper
shadow

No lower
shadow

(a) (b)

Figure 4: Hekin-Ashi candle

Figure 4 above show how to understand Heikin-Ashi candle for BUY or SELL signal. If Heikin-Ashi candlestick (a) without

lower shadow indicate it is strong uptrend, while Heikin-Ashi candlestick (b) without upper shadow indicate strong

downtrend. Regardless how long its body or shadow, we just need only ONE shadow to determine the strong trend.
Ranging or Reversal signal

Figure 5

In figure 5 shows Heikin-Ashi candlestick with both upper and lower wick and small body, indicate price is in

ranging market or price will be reversal. It is signal to exit your trade if you already in or prepare for strong trend

signal. This is not signal to enter the market.

Start off New Direction or Continuation signal

Has both
shadow
Has both
shadow

(c) (d)

Figure 6

Figure 6, show Heikin-Ashi with both shadow and large body indicate start off new trend or trend continuation. You also

can use it as buy or sell signal for early entry signal.

 Figure 7: Heikin-Ashi

Figure 8: Normal Candlestick

Figure 7 & 8 above show, how different Heikin-Ashi price action with normal candlestick.

 Earlier, both candlesticks shown similar reversal price action but then Heikin-Ashi shown early SELL signal while
normal candlestick doesn’t show SELL signal.
 Next, Heikin-Ashi show strong SELL signal while normal candlesticks still doesn’t show any signal yet.
 After that, both candlesticks shown reversal price action, and ranging market
 Then, Heikin-Ashi shown early SELL signal while normal candlestick doesn’t show any signal yet.
 Lastly, both candlesticks shown reversal price action signal to exit your trade.
Conclusion
Heikin-Ashi candlestick is a type of price chart almost similar to normal candlestick. It helps to filter out market

noise and visual an easy chart to read.

It very helpful for new traders to read and understand the market.

In the other hand for senior traders, it can help to avoid trade in ranging market and keep them in trending

market. Also, please DO NOT CONFUSE Heikin-Ashi candlestick with normal candlesticks (Japanese candlestick).

Strong trend

Star off new

trend or
continuation

Ranging or
reversal signal

Figure 9: Summary of Heikin-Ashi price action