It is a price charting technique that filters out noise.
It uses modified open, high, low and close prices:
- haClose = (Open + High + Low + Close) / 4
- haOpen = (Previous haOpen + Previous haClose) /2
- haHigh = Max(High, haOpen, haClose)
- haLow = Min(Low, haOpen, haClose)
Heiken Ashi makes trend identification, retracements and reversals easier:
- Uptrend is identified as a series of white bodies.
- Strong Uptrend is defined as a series of long white bodies with and no lower shadows.
- Downtrend is identified as a series of black bodies.
- Strong Downtrend is defined as a series of long black bodies and no upper shadows.
- Weak trends are defined by the presence of smaller bodies.
- Retracement is defined by the presence of smaller bodies and the presence of upper and/or lower shadows.
- Reversal is defined by the presence of a Doji or color change.