What is Heikin-Ashi?

Heikin-Ashi is a method of candlestick charting that helps traders identify trends in the market by reducing price noise.

It appears similar to regular candlestick charting but is very different in how the candles are calculated.

Normal candlesticks use the following price information during the chart's time period: Open, High, Low, and Close.

Heikin-Ashi attempts to smooth out the noise by adjusting these values before they are painted. 

The formula: 

• The candle's open price is set to the average of the previous candle's open and close prices.
• The candle's high price is set to the highest value of the current period's high, open, or close prices.
• The candle's low price is set to the lowest value of the current period's low, open, or close price.
• The candle's close price is set to the current periods average of the open, high, low, and close prices divided by 4.

The result takes a chart that looks like this (regular candlesticks): 

And turns it into this (Heikin-Ashi): 

A series of candles with no lower wicks are used to identify strong up trends, while a series with no upper wicks is used to identify strong down trends.

As you can see, the price trends are quite a bit more clear on the Heikin-Ashi chart than a traditional candlestick chart.