In an unpredictable global economy investors and traders must use any and all tools that they can to make the best choices for themselves and their clients. Calculations can be complicated and analysts gather and assess information constantly for all sorts of stocks, securities and commodities. Graphs, charts and formulas are constantly created and formulated to put all of the prices and trends in one place to predict what the best investments are and where they are headed.
Candlestick charts are one of the most used for securities and commodities traders. Originating in Asia in the 1800s, candlestick charts combine the tools of both bar and line graphs to see where prices are and where they are going. The visual created by the lines on the bars resembles a candle and wick and that is how they were named.
Heiken Ashi are a specialized type of candlestick chart that use a set of formulas to be even more accurate in their price predictions. They use specific numbers and mathematic equations to narrow down trends and track where they are going. The candles are actually weighted by the prior candle. Using the open, close, high and low prices of that time period and then one before it, a new, stronger indicator is created. The open price is the average of the previous candle’s open and close prices. The close is the average of the open, close, high and low of that time period. The high is whichever of the high, open and close is the highest. The low is the lowest of the low, open or close.
By averaging and creating this continuity in the numbers, the Heiken Ashi chart cuts down on the influence of short term fluctuations that might affect the regular candlestick chart. It allows a more thorough view of the trends in the near past and present to project an image of the possible future. Heiken Ashi charts also give the trader a less dramatic buy or sell option by tempering the trends and how they have related in the past and present in order to make future decisions.
During a bullish period, the candles in a Heiken Ashi chart will have large white bodies or candles and an upper shadow without any bottom shadow. A bearish time will show larger bodies with long lower shadows but no shadow at the top. A change or reversal will be seen in shorter candles with long shadows at both the top and bottom.
As part of an entire system, Heiken Ashi charts are excellent predictors of both the long term and short term trends in prices. Seeing the ups and downs and which way the market is headed can be very helpful when decided whether to add long or short term investments to a portfolio or when to get out of certain commodities and head elsewhere. The Heiken Ashi chart is a very valuable tool for trading on both U.S. and Forex markets to track global and national trends in prices and where best to make the most lucrative investments.
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