The best way to understand Heikin Ashi charts is to know that in Japanese "heikin" is literally translated to the word "average". This means that Heikin Ashi charts attempt to show an average price of an asset over time rather than exact measurements like a candlestick chart.
Candlestick charts are one of the most detailed ways to visualize and follow price. They show the open, high, low, and close.
Heikin Ashi charts take that same data, but instead attempt to smooth it out by taking the averages of the current time period and previous time period. So while a candlestick chart shows real-time data for the current time period, a Heikin Ashi chart shows an average of that data. Here's how the chart is calculated:
Open = (Previous bar open + previous bar close) / 2
Close = (Open + High + Low + Close) / 4
High = Highest point whether it's the open, high, low or close
Low = Lowest point whether it's the open, high, low or close
One final important note: while Heikin Ashi and other non-standard charts can be useful to analyze markets, they should not be used to backtest strategies or issue trade orders, as their prices are synthetic and do not reflect bid/ask levels at exchanges or brokers. Read more here:
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