Heikin Ashi candlesticks are calculated as follows:
- Open = ½(open of previous bar + close of previous bar)
- High = max[High, Open, Close]
- Low = min[Low, Open, Close]
- Close = ¼(open+close+low+close)
Compared to traditional candlestick charts, Heikin Ashi charts eliminates some of the noise and captures the trend better. To set up a Heikin Ashi chart on Interdax, go to the upper left-hand side of the trading chart panel and click on the candlestick symbol, and then select ‘Heikin Ashi’.
The image below shows the different types of candlestick patterns found in Heikin Ashi charts.
In general, when markets are trending, the Heikin Ashi candles show no upper or lower wick (depending on whether there is a bearish or bullish trend). As long as the candles have no upper (or lower) wick, we should remain in the position in the direction of the market.
Reversal candles are candles with upper and lower wicks. They can be like dojis and spinning tops in traditional candlestick charts. It is best to stay out the market when reversal candles are present and be ready to enter once a trend is identified by candles with no upper or lower wicks.