Heikin Ashi Charts on TradingView: Tutorial
https://www.youtube.com/watch?v=Sajs1C3dufE
Transcript:
Traders, today’s video is going to be covering the Heiken Ashi chart type, which as you can see we just selected from the chart type menu. And now we can see a Heiken Ashi chart in front of us, which with each of these critical bars showing, including these consecutive green bars and consecutive red bars, that we otherwise might not see on say a traditional candlestick chart.
So here’s a traditional candlestick chart. We’re looking at the same symbol, it’s Nike. We’ve got candle selected. Look at the difference here. Now we’re going to go to Heiken Ashi and look at the smoothness in the consecutive colors of each candle. Well, why is that happening? And how can you use this chart type in your research and analysis? One of the best ways to get started with Heiken Ashi charts is to actually know what it’s translated to.
Now, it is a Japanese chart type that was started many, many years ago. And Heiken Ashi literally translates to average bar. So Heiken means average, Ashi means bar. Let’s focus on Heiken, average, because when we have the Heiken Ashi chart type selected, we immediately know that each bar or candle, we use those words interchangeably, we’re talking about this formation right here, is specifically an average price of that time interval.
It is not a literal exact price like a candlestick chart. So before we go any deeper, let us walk you through that in detail. So let’s focus on the most recent price action of Nike. So we’ve got this hiking ashy bar right here. Check it out. So we can see that the open was $72.74. The high was $72.96. The low was $71.51. And the close was $72.20.
Now we’re reading these values from the OHLC values at the top here, open, high, low, close. And what we’re going to show you is how those numbers are different fundamentally from the candlestick chart. So we go to the candlestick chart, we go to that same exact bar or candle, and we see the open is $71.51. The high is $72.96. The low is $71.51. And the close is $72.81.
And it’s a green candle. The previous day was a red candle. So we go back to Heiken Ashi and we observe that the numbers are different as well as the color of the candle. Why is that happening? Well the first thing we’re going to show you is that it is showing an average price. And here are the exact calculations for that average price.
So the open on a Heiken Ashi chart is not calculated the way you’re used to. In the case of looking at this Nike chart on a daily basis, the open is 9.30 AM Eastern time. That’s when the New York Stock Exchange opens. It’s when they ring the opening bell and trading begins. And that usually marks the open price.
But on a Heiken Ashi chart, this is a little different. Because the open is calculated by adding up the previous open to the previous close and dividing by two that means you’re getting an average price of yesterday’s action and when the day begins you are seeing that as the open the close is also fundamentally calculated differently.
Once again, we’re looking at a chart of Nike. It trades on the New York Stock Exchange. If you know the New York Stock Exchange hours, it closes at 4 p.m. Eastern. That is the closing price. So whatever the price was at the close is generally the closing price you’ll see up here or on the chart. But on a Heiken Ashi chart, it’s different. And by the way, you could be looking at any asset class, could be Forex, crypto, anything else.
And you just want to make sure you know the opening and closing values of those specific asset classes. Crypto’s 24-7, for example. So you might be looking at a five-minute chart. Well, the open is the first trade, the first second of that five-minute chart. The close is the last trade of that when that five minute concludes.
But on a Heiken Ashi chart, it’s not like that. It is different. The close is a full on average of the close plus the open plus the high plus the low divided by four. It’s essentially the open high low close all divided together, all added together and divided by four for one final average. So now you’re really starting to see the difference in the Heiken Ashi chart compared to other candlestick charts.
The open and the close are quite literally averages based off of these specific calculations, and that is how the Heiken Ashi chart is shown to you on the chart in front of you. Also the high point on the chart is equal to the highest value of a recent high, open or close, and the low point on the chart is equal to the lowest value of the recent low, open or close.
So now you are starting to understand the basics of the Heiken Ashi chart by not only knowing how it’s different from say a candlestick chart, even a line chart or any other chart you’re familiar with that might be constructed in a similar way like bar charts.
But now you also know why it’s different because Heiken Ashi literally stands for average bar. And you know that these bars or candles are being constructed based off of a specific average, which you can find right here. It’s also in our help center. Please go to our help center and search for Heiken Ashi. Read all about it there as well.
Now, why do traders like Heiken Ashi charts? Well, they like Heiken Ashi charts because of the capability to view trends in a very straightforward way. Look at how many consecutive green bars there are here. Then look at how many consecutive red bars there are here. And so the trend is just a little easier to visualize. It’s smooth. It is showing us an average price.
Some of you may be familiar with moving averages and you know how those lines are typically smoother than say a straightforward candlestick chart. A Heiken Ashi chart in a way can be looked at in a similar manner. You are getting an average price shown to you as candlesticks and that average price is being calculated based off of the formula that we showed you earlier.
Now one more important thing though to remember is that there are some limitations to Heiken Ashi. It is not necessarily a real-time price chart like a candlestick chart. Everything on the chart is an average. Even the color of the candles themselves are colored based off of these averages and whether it is above or below those specific levels going back in time.
So one more final key point as well about that is that when you double click on the chart, and by the way, as usual, you can fully customize your Heiken Ashi chart as you’re used to. You can color, hide, customize every aspect of the body borders wick. If we wanted to have these white borders on the chart, we could do just that. So now we can really see the bars of the Heiken Ashi chart clearly.
What you’re also going to see is real prices on price scale instead of Heiken Ashi price. Well, remember, the Heiken Ashi price is an average. So the price you see on the price scale is also going to show you that average price based off of the formulas we were demonstrating earlier and that are in our help center. If we check this box, you’ll see the price below it disappeared. In fact, let’s zoom in to really make sure you can see this.
We’re on a five minute chart now. Let’s double click, uncheck this. You can see we have two price points on the chart, $72.80 and $72.81. That’s because the $72.81 is different than the $72. The 7281 is the average price of the clothes, whereas the 7281 is the actual price. So if we go to a candlestick chart, we’re going to see that actual price, 7281.
We have the capability on Heike and Ashi charts to hide the average price and just look at the real price, which means you can see the real price in real time while the average bars are forming before your eyes. Kind of a cool feature actually to combine the real time price with the average price of Heiken Ashi bars.
And also another limitation of course is that you aren’t going to get the exact literal values that you might be looking for. But in that case you want to be very proficient at switching from candles like this to get the open high low close that exact price point and Heiken Ashi or utilizing the multi-chart layout to look at two charts at once one that’s Heiken Ashi one that’s candlesticks now you can see the smoothness of Heiken Ashi alongside the literal price action that we are all used to in terms of candlesticks.
