Heikin Ashi in gold trading

Heikin Ashi (“average bar” in Japanese) is a candlestick variant. Each candle’s close is the average of the bar’s open, high, low and close; its open is the midpoint of the previous Heikin Ashi candle’s open and close; its high and low include those values. The result is a smoother chart with fewer color changes.

How it applies to gold trading

On a choppy gold chart, Heikin Ashi makes trends clearer. Strong uptrends show runs of green candles with no lower wicks; strong downtrends show red candles with no upper wicks. Small bodies with wicks on both sides suggest indecision. Many traders use Heikin Ashi to stay in a trend or to read direction, then place orders on a regular chart.

The catch is that the prices are synthetic. A Heikin Ashi close is not a price gold actually traded at, so stops, entries and backtests based on it can be misleading.

Worked example

Example (hypothetical numbers): a regular 1-hour candle opens 4,010, highs 4,022, lows 4,006 and closes 4,018. Its Heikin Ashi close is (4,010 + 4,022 + 4,006 + 4,018) ÷ 4 = 4,014. If the previous HA candle’s open and close were 4,000 and 4,008, this HA open is 4,004. The chart shows a candle from 4,004 to 4,014, while real price is at 4,018.

A common mistake

Backtesting a strategy on Heikin Ashi prices and assuming fills at those values. Use real prices for entries and exits.

See also: Candlestick, Trend following, Moving average, Price action.

Frequently asked questions