On first encounter, Heikin-Ashi bars may look very similar to the candlestick chart. But, there is a significant difference between the two. Heikin-Ashi, which more or less translates from Japanese as ‘average pace’, gives you an indication of price averages – and their changes – over a period.
Heikin-Ashi charts are smoother than candlesticks and, rather than offering an exact price at any moment, are often looked to for determining general trends over longer timeframes. The opening price of a Heikin-Ashi bar is the mid-point of the previous bar, and the closing price equals the average price for the current time period.
In short, each Heikin-Ashi bar shows you the direction and magnitude of every period’s change in average price level. For example, a long green bar will indicate that the average price has increased substantially. Conversely, a long red bar tells you that the average price in the market has dropped significantly.
