Heiken Ashi charts are used by investors to accurately predict and identify trends in the market (usually of securities/commodities). They use very specific formulas and numbers to find the open, close, high and low prices over a certain period of trading (from hourly to daily to weekly to monthly or longer) in order to choose the safest or soundest investments, especially in a fluctuating or volatile market as exists currently across the globe. Heiken Ashi are a type of candlestick chart, using a combination of bar and line charts to narrow down numbers and truly see where a price is headed. That is why Heiken Ashi, also have the appearance of candles, with the bar (candle), line (wick) and shading and shadowing that actually takes the calculation past that of a traditional candlestick chart.
Heiken Ashi figure out 4 main numbers for the specified period of time: high (highest of the open, close and/or high price); low (lowest of the open, close or low price); open (average of the previous bars’ open and close); and close (average of high, low, open and close). From these numbers, the chart is drawn and the images of the bars, wicks and shadowing will provide a number of conclusions to the attentive analyst. Downward trends will be shown by filled in bars or candles. Upward trends will be empty or white bars.
The resulting chart will show five different conditions that will tell the financier whether or not to invest or maintain your investments. First and most desirable, an empty or white candle with no shadows is a very favorable or bullish market that should either be bought into or maintained. An empty candle with slight shadows at the top means that longer investments should be kept, but shorter positions might be left. A candle with shadowing at both the top and bottom means change is coming. Conservative traders will hold their position while the gambling investor might buy or sell even with the risk, based on previous trends and the assumptions to be made. Dark or filled bars (candles) mean things are about to trend down, so any larger or longer investments should be left. A dark candle with no shadows at the top mean the downward trend is coming strong and probably heading down much further.
The specific formula used to construct the four numbers and the resultant calculations, lines and shading make the Heiken Ashi a more effective and illustrative image than the typical candlestick chart of what is happening and why with the prices and trading of certain commodities. The numbers will be more accurate and reliable because of the use of averages. Slight changes will not be as visible, so a short or temporary change that might be misleading on a candlestick chart will not be as prominent on the Heiken Ashi.
The Heiken Ashi chart allows for more accurate predictions of change and price, giving long term or large scale investors a clearer visual of what is happening, why and whether or not to make a purchase based on the specific indicators derived for this kind of chart.
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