What is Heikin-Ashi Technique?

416 reads · Last updated: December 5, 2024

The Heikin-Ashi technique averages price data to create a Japanese candlestick chart that filters out market noise. Heikin-Ashi charts, developed by Munehisa Homma in the 1700s, share some characteristics with standard candlestick charts but differ based on the values used to create each candle. Instead of using the open, high, low, and close like standard candlestick charts, the Heikin-Ashi technique uses a modified formula based on two-period averages. This gives the chart a smoother appearance, making it easier to spots trends and reversals, but also obscures gaps and some price data.

Definition

An average candlestick chart is a type of Japanese candlestick chart created using average price data to filter out market noise. Unlike standard candlestick charts, average candlestick charts do not use open, high, low, and close prices but instead use a modified formula based on the averages of two periods. This approach results in a smoother chart appearance, making it easier to spot trends and reversals.

Origin

The concept of average candlestick charts originated from the evolution of Japanese candlestick techniques, aimed at smoothing price fluctuations to help traders better identify market trends. Although the exact invention date is unclear, its application has become widespread in technical analysis, especially when filtering market noise is necessary.

Categories and Features

There are mainly two types of average candlestick charts: traditional average candlestick charts and weighted average candlestick charts. Traditional average candlestick charts use simple averages, while weighted average candlestick charts calculate averages based on different weight allocations. Key features include smoother price movements, reduced market noise, and easier identification of trends and reversal signals. However, this type of chart may also hide price gaps and some detailed data.

Case Studies

Case Study 1: During the 2008 financial crisis, some investors used average candlestick charts to identify long-term market trends, helping them make more informed investment decisions amidst market volatility. Case Study 2: During the 2020 pandemic, stocks of certain tech companies experienced significant volatility. Investors used average candlestick charts to identify potential reversal signals, leading to substantial gains as the market recovered.

Common Issues

Investors using average candlestick charts may encounter issues such as missing short-term price fluctuations and gaps due to the chart's smoothing characteristics. Additionally, over-reliance on average candlestick charts might lead to overlooking other important market indicators.

Suggested for You

Refresh
buzzwords icon
Lisbon Treaty
The Lisbon Treaty, also known as the Treaty of Lisbon, updated regulations for the European Union, establishing a more centralized leadership and foreign policy, a proper process for countries that wish to leave the Union, and a streamlined process for enacting new policies.The treaty was signed on December 13, 2007, in Lisbon, Portugal, and amended the two previous treaties that established the foundation for the European Union.
1 K learned

Lisbon Treaty

The Lisbon Treaty, also known as the Treaty of Lisbon, updated regulations for the European Union, establishing a more centralized leadership and foreign policy, a proper process for countries that wish to leave the Union, and a streamlined process for enacting new policies.The treaty was signed on December 13, 2007, in Lisbon, Portugal, and amended the two previous treaties that established the foundation for the European Union.

buzzwords icon
Labor Intensive
The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.
1 K learned

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

buzzwords icon
Fast-Moving Consumer Goods
Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.
2 K learned

Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

buzzwords icon
Negotiable Instruments
A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.
1 K learned

Negotiable Instruments

A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.

buzzwords icon
Renewable Resource
A renewable resource is a resource that can be replenished naturally over time. As a result, it is sustainable despite its consumption by humankind.Renewable resources for the production of energy are considered especially important for their potential to replace non-renewable, or finite, resources. Additionally, renewable resources can offer cleaner energy solutions than those provided by non-renewable resources such as coal and fossil fuels.Examples of renewable resources include the sun, wind, water, the earth's heat (geothermal), and biomass.
1 K learned

Renewable Resource

A renewable resource is a resource that can be replenished naturally over time. As a result, it is sustainable despite its consumption by humankind.Renewable resources for the production of energy are considered especially important for their potential to replace non-renewable, or finite, resources. Additionally, renewable resources can offer cleaner energy solutions than those provided by non-renewable resources such as coal and fossil fuels.Examples of renewable resources include the sun, wind, water, the earth's heat (geothermal), and biomass.

buzzwords icon
Feasibility Study
A feasibility study is a detailed analysis that considers all of the critical aspects of a proposed project in order to determine the likelihood of it succeeding.Success in business may be defined primarily by return on investment, meaning that the project will generate enough profit to justify the investment. However, many other important factors may be identified on the plus or minus side, such as community reaction and environmental impact.Although feasibility studies can help project managers determine the risk and return of pursuing a plan of action, several steps should be considered before moving forward.
1 K learned

Feasibility Study

A feasibility study is a detailed analysis that considers all of the critical aspects of a proposed project in order to determine the likelihood of it succeeding.Success in business may be defined primarily by return on investment, meaning that the project will generate enough profit to justify the investment. However, many other important factors may be identified on the plus or minus side, such as community reaction and environmental impact.Although feasibility studies can help project managers determine the risk and return of pursuing a plan of action, several steps should be considered before moving forward.

© 2026 Longbridge｜Disclaimer