What are the Heikin Ashi Candles in Trading?

The Heikin Ashi candles, also sometimes spelt Heiken-Ashi, represent an average bar in Japanese. As a trader, you can use it in a technical trading chart and locate favourable market trends and forecast possible future prices of assets.

Thus, it helps in determining when to stay in a particular trade while a certain trade persists and exit when the trend reverses.

As of 2025, more than 9.5 crore investors are currently invested in the stock market directly and being one of them, if you are looking for profit-making opportunities, learning to decode the Heikin Ashi might be helpful.

Working Mechanism of Heikin Ashi Candles

As a trader in the Indian stock market, you must have seen constant minor fluctuations in asset prices. Unlike conventional candlestick patterns, Heikin Ashi candles smooth out such minor fluctuations and offer a clear view of market momentum and price trends.

The core concept of smoothing out the price fluctuations is achieved by a Heikin Ashi (HA) by modifying how crucial price data are displayed, such as open, high, low, close or OHLC.

While displaying price-related data, instead of plotting raw OHLC for every period, it uses a specific formula that helps average price data, taking values from earlier periods.

Based on the Heikin Ashi candle formula, the opening price point of one candle is based on the middle point of the body of the earlier Heikin Ashi candles. The formula decides on the ‘close’ by averaging the raw OHLC of the current period.

Also, its specific formula decides on the HA high and HA low to result in a chart displaying a consistent sequence of coloured candles when there are strong trends (bullish or bearish) that persist.

Like many Indian traders, you might also find it effective to spot trends across a variety of assets such as stocks, futures and options, due to their perceived simplicity and clarity.

Understanding the Heikin Ashi Candle Formula and Calculation

Traditional candlesticks typically consider the OHLCs of each period, but Heikin Ashi candles employ a modified formula and average these prices. Here are 4 detailed calculation phases associated with the Heikin Ashi Candle Formula that you must note:

1. Calculating the Closing Price

   You can determine the closing price of a Heikin Ashi stick by averaging the OHLCs of the current period. The applicable formula, therefore, simply is (Open + High + Low + Close) / 4. Suppose the OHLCs of a particular period are 100, 115, 98, 107 in INR. The current HA close or average of the current HA candlestick becomes (100 + 115 + 98 + 107)/4 = INR 105.

2. Calculation of Opening Price

   To calculate the opening price of an HA candlestick, you must consider the values of its preceding candlestick. Use them in a formula that is HA close: (previous HA open + previous HA close) / 2. Suppose the previous open and close were INR 99 and INR 106, respectively. The HA close becomes 102.5.

3. Calculation of the Highest Price

   Calculating the highest price of a Heikin Ashi stick is quite simple. All you need to do is point out the highest price among the high, opening and closing prices of an asset in the current session. The formula here is Max (High, open, close). Continuing with the example, the high or max is (115, 102.5, 105) = INR 115.

4. Calculation of the Lowest Price

   Similar to the calculation of the highest price of an asset, you can figure out the HA low by considering the low, open and closing values or prices of the current period. The applicable formula goes like Low (low, open, close). Implying the respective prices, you can represent it as low (98, 102.5, 115) = INR 98.

Thus, using the Heikin Ashi Candle Formula, you can determine the values of the current Heikin Ashi stick. Summarising the outputs from the above example, the OHLC of a current candlestick is INR 102.5, INR 115, INR 98, INR 105.

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What do the Heikin Ashi Candles Pattern indicate?

The Heikin Ashi helps portray market trends without noise,which helps traders to make investment decisions. The following indications of uptrend, downtrend, consolidation, etc, help investors while making those decisions:

1. A Strong Price Uptrend

   You can determine a potential uptrend in asset prices using a series of green Heikin Ashi candles. The candles typically appear with no lower shadows or wicks, or sometimes might appear with a very small lower wick. It indicates that buyers or bulls are constantly pushing the average asset prices higher.

2. A Strong Downtrend

   As a trader, you need an indication of when an asset price might go down and make a relevant trading decision. You can locate a probable downtrend in asset prices by locating a series of red Heikin Ashi sticks. It shows that sellers or bears are in control, constantly pushing the average asset price downwards.

3. Phase of Consolidation, Indecision or Reversal

   A phase of consolidation or indecision might appear during a trend. It means that a previous price trend is weakening, there is uncertainty between buyers and sellers, and thus the next price trend is also uncertain. Any change in candle colour, for example, from green to red after a price uptrend, indicates a potential reversal that you must observe closely.

Process of Read Heikin Ashi Candles

Now that you have an idea of Heikin Ashi’s meaning, Heikin Ashi Candle Formula and its indications, you must learn how to read them based on their characteristics:

1. Size of the Heikin Ashi Candles Body

   You can take into account the size of a Hekin Ashi stick during a price trend to understand its momentum. For example, a long body of this candlestick indicates a strong momentum towards the direction of its prevailing colour. Conversely, a short body of this candlestick signifies that the momentum is losing its strength and might move towards a consolidation.

2. Colour of the Hekin Ashi Sticks

   Green coloured Heikin Ashi Candles typically represent that the average asset prices are moving up, i.e., the HA close is greater than the HA open. On the other hand, a red HA stick indicates that the average prices are moving downwards or HA close is less than HA open.

3. Wicks or Shadows of Heikin Ashi Candles

   A green Heikin Ashi stick with a long candle body and minimal to no lower shadows represents a price uptrend. Whereas a red HA candle with a long body and no upper shadow typically represents a price downtrend. Smaller HA candles with both upper and lower shadows represent indecision between buyers and sellers and a potential reversal.

4. Change in Trend

   Any change in candle colour, such as from green to red or vice versa, indicates a potential reversal. Such a change in the candle colour helps traders make informed decisions for market entry or exit.

Advantages of Heikin Ashi Candles

By removing market noise, showing clear price trends, Hekin Ashi sticks help portray the general market trend:

1. Helps Remove Market Noise

   The underlying Heikin Ashi formula considers the prices of the previous period to determine the current period’s prices. It brings you a clearer chart. Suppose the raw prices go from INR 100 to INR 110 for an asset. However, the HA candle would not jump that sharply. Considering the average of the previous open and close is at INR 102, the new HA open might be at INR 102.

2. Clear Trend Signals

   The sequence of strong Heikin Ashi candles with long bodies and minimal wicks on either side helps with trend visualisation. When these candles appear consistently in one direction, it typically indicates that the trend still has strength and is likely to continue.

3. Easier for New Traders

   If you are new to trades, reading price trends from traditional charts might be complex, time-consuming, and you might make mistakes at the beginning. As Heikin Ashi candles typically display the overall or general market trend, it becomes easier for new traders.

Limitations of Heikin Ashi Candles

The price averaging results in late price trends, limited granularity, etc, impacting traders:

1. Late at Showing Price Trend

   By eliminating market noise, Heikin Ashi candles represent a cleaner chart, but it also acts as a limitation. For example, Heikin Ashi usually shows bullish or bearish bars until prices make a strong move in the opposite direction. Thus, its smoothing effect reduces noise, but it might also happen that the chart reacts a bit late to new price changes.

2. Have Limited Granularity

   The averaging or smoothing effect of Heikin Ashi might limit its granularity in terms of showing price trends. Thus, it becomes less effective for traders who need more granular data to make quick trade decisions.

Is Heikin Ashi Reliable?

Heikin Ashi Candles are typically considered reliable for locating long-term price trends. As there are no mixed signals like those in traditional sticks, it typically shows clearly the price uptrend or downtrend.

Conclusion

Heikin Ashi Candles in trading help smooth out the market noise and visualise whether the market is on an uptrend, downtrend or consolidation. With its underlying formula, it considers the prices of the previous session to determine the prices of the current one.

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FAQ’s on Heikin Ashi candles

1. How to use Heikin Ashi candles for trend analysis?

To use the Heikin Ashi for trend analysis, you might use its underlying formula. However, modern trading platforms typically have options to calculate and plot such a formula automatically.

2. How to identify buy and sell signals using Heikin Ashi candles?

Consecutive green Heikin Ashi candles with no lower wicks typically denote an uptrend and a buying signal. Red candles with no upper wicks typically signify a selling signal.

3. Can Heikin Ashi charts be used for intraday trading?

Yes, intraday traders might use it. Hoover, as the smoothing effect might result in showing price trend or its reversal a bit delayed, it might impact the quick decision-making of day traders:

4. Do Heikin Ashi candles work for long-term trading?

Yes, traders often consider this candlestick reliable, showing long-term price trends on charts.