Blockchain and Cryptocurrency Advanced - The Heikin-Ashi Technique

The Heikin-Ashi is basically a type of chart pattern that is very similar to the regular candlesticks but very different in how they work. The Heikin-Ashi technique is basically a type of candlestick on a chart that works by averaging price data to generate candlesticks. The colour of the Heikin-Ashi shows the direction of the price movement. The main of the Heikin-Ashi technique is that it generates candlesticks that filters out noise due to high price volatility. This is done by averaging out the price moves.

The Heikin-Ashi technique was created all the way back in the 1700s by Munehisa Homma. While it is very similar to the regular candlesticks based on their characteristics, it is very different in how it works and how the candlesticks are generated. The Heikin-Ashi technique makes use of specific calculation to generate its candlesticks and it is based on the averages of two-period. This helps the Heikin-Ashi filter out noise in the market by creating a smooth chart that helps to show the direction the market is moving and also show trend direction.

Heikin-Ashi Chart on Tradingview

Differentiate between the traditional candlestick chart and the Heikin-Ashi chart

Traditional candlestick on AAVE/USDT chart

Heikin-Ashi chart on AAVE/USDT chart

• The traditional candlesticks changes colours from green and red more frequently due on the up and down price movements. While the Heikin-Ashi chart colors changes is smoother and successive.

• In the traditional candlestick, the can be presence of noise due to price volatility. While the Heikin-Ashi does not have the noise because it averages out the price action.

• The traditional candlestick chart uses only the open, high, low, and close to generate the candlesticks chart. While the Heikin-Ashi chart uses mathematical formula and calculations to generate the candlesticks chart.

• On the traditional candlesticks chart, candles can still be alternating colours from red to green in an uptrend direction. While on the Heikin-Ashi chart, candles are more likely to remain in the green colour in an uptrend direction.

• Traditional candlestick chart uses the exact market prices. While the Heikin-Ashi chart uses average prices which may not match the market prices.

• In the traditional candlestick chart, it is very difficult to get entry and exit signals. While the Heikin-Ashi chart can show good entry and exit signals.

• The traditional candlestick chart shows price gaps. While the Heikin-Ashi chart hides price gaps.

• The traditional candlestick chart usually have a new candlestick that opens after the previous close. While the Heikin-Ashi chart usually have a new candlestick that opens from the center of the prior candle.

• On the traditional candlesticks, directional moves are rougher. While the Heikin-Ashi chart smoothens out the directional moves.

• On the traditional candlesticks, it is more difficult to interpret the chart due to the roughness and presence of noise. While on the Heikin-Ashi chart, it is a lot easier to interpret the chart.