Difference Between Heiken Ashi And Candlestick Charts: One of the secrets to long-term success in technical analysis is the ability to predict where an asset will go in the future. But technical analysis, cannot be done without access to historical market charts.
And traders commonly use Heiken Ashi and Candlestick Charts to make their interpretations. In this article, we are going to discuss the difference between Heiken Ashi and Candlestick Charts and help you to choose the right charting types for you.
But before looking at the difference between Heiken Ashi and Candlestick Charts, let us briefly discuss these charts individually.
The Candlestick chart was first introduced in Japan in the 1700s by a Japanese rice trader named Homma Munehisa. It was initially used by traders to get an overview of the market prices of goods.
Somewhere in the 1900s, Charles Dow picked up this method of charting the prices and it is currently the common chart used by traders of financial instruments.
The Chart is named a candlestick chart, because the components of the chart that indicate the price of the security look like a candle.
A single candlestick comprises three major components: the body, the wicks, and the color. Here, the body of the candle represents the range within which the security has opened and closed during a specific time period.
The top wick of the candle represents the highest level the security has reached during the specified time period and the lower wick of the candle represents the lowest level the security has reached during the specified time.
The body of the candlestick will be colored green if the closing price of the security is higher than its opening price and if the closing price is lower than the opening price of the security, the body of the candle will be red in color.
These candlesticks have been named and classified into various categories based on their characteristics over time, and traders use these patterns to base their trading decision in the financial market.
Heikin Ashi Charts
The Heikin Ashi chart is another chart developed by Homma Munehisa in the 1700s. Though this chart looks similar to a candlestick chart, it differs on the basis of values used to derive each chart.
The chart is named “Heikin Ashi” which means an average bar in Japanese and as the name suggests, the chart uses the average data of two periods to derive one candle.
As it uses the average data of two periods to derive its candles, it creates smoother trends on the chart which shows the trends more clearly to the traders and helps them trade easily using the trends.
Similar to the candlestick, this chart consists of a body and wicks and is colored green or red. The top wick of the candle represents the highest level the security has reached during the specified time period and the lower wick of the candle represents the lowest level the security has reached during the specified time.
The color of the candle indicates whether the security has ended higher or lower than its opening price during the specified time period. If the candle is colored green, it means the closing price is higher than the opening price and if the candle is colored red, it means the closing price is lower than the opening price.
While the wicks and colors in the candlestick and Heikin Ashi charts reflect the same data, there is a difference in the data represented in the body of the Heikin Ashi chart.
In the body of the Heikin Ashi candle, the opening price is arrived at by taking the average of the opening price and the closing price of the previous candle. The closing price is arrived at by taking the average of a security’s open, high, low, and closing prices during the current period.
Difference Between Heiken Ashi And Candlestick Charts
The following are the differences between Heiken Ashi and candlestick charts:
- Construction: While the candlestick charts are based on the open, high, low, and close prices of a security during a specific period, the Heikin Ashi candles use the averages of previous candles and the current prices to arrive at their opening and closing prices.
- Appearance: While the candlestick charts use the current prices to form a candle, the Hiekin Ashi uses the average prices which makes the chart a smoother appearance compared to the candlestick.
- Trend Identification: Candlestick charts give us more detailed information about price changes and can be used to spot potential reversals in the market. On the other hand, as Heikin Ashi has a smoother chart, it is more suitable for identifying the current trends in the market.
- Timeframe: While the candlestick charts are appropriate for all the timeframes, the Heikin Ashi charts are better suited for longer timeframes. This is because of the calculation method used to form a candle in Heikin Ashi charts which makes the price movements smoother and it easier to identify trends over longer time periods.
- Trading Style: Candlestick charts are more suitable for traders who have an active trading style. Heikin Ashi on the other hand is more suitable for traders who have a passive trading style.
- Data Interpretation: Traders need to have a better understanding of technical analysis in order to identify trends and patterns through candlestick charts. On the other hand, it is easier to interpret trends in Heikin Ashi as the charts have a clear representation of the trend.
In this article, we explained what are Candlestick Charts and Heikin Ashi Charts after which discussed the difference between Heiken Ashi and Candlestick Charts.
Candlestick charts and Heikin Ashi charts are both helpful instruments for traders looking to forecast price movements in financial markets. One cannot say that one type of chart is better than the other.
Both have their own set of advantages and it all depends on the type of information the traders want from the security. Traders looking to obtain detailed information on the price of the security go for candlestick charts and traders looking to get an easier interpretation of the security go for Heikin Ashi Charts.
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