Is the Heikin Ashi candlestick chart different from a traditional Japanese candlestick chart? Yes!
The two have similar appearances, and that leads some to think that they are the same, but that is not right. Below are two charts, exact same timeframe:
Traditional Japanese candlestick chart:
Heikin Ashi chart:
You can see how similar these two charts look, but you don’t want to fall for the idea that they are the same.
The Japanese candlestick chart is reflecting the true price of the currencies as they trade. You can see the highs, the lows, the open, and the close.
However, with the Heikin Ashi candlestick chart you are seeing an average of recent price movement. This may help you to better identify the overall trends in the market.
Some people find this helpful because they can’t necessarily spot a trend as easily in all of the noise that is produced on a Japanese candlestick chart. There are too many rapid up and down movements in the market, and people get confused about what they are looking at specifically. The Heikin Ashi chart smooths that out for them considerably.
The candlesticks on a Heikin Ashi chart always begin at the mid-point of the previous candle (because they are based on the average of the open and close of that candle.) This is one way to quickly identify the difference between this type of chart and the traditional Japanese candlestick chart. You should make sure you know which one you are looking at before proceeding. This will help you understand the information that is available to you and why it might have an impact on the way that you decide to trade.
Take the time to review your Heikin Ashi charts if you want to see where the dominant trends are for a given currency pair at any time. After that, you can look for a great entry point based on what this chart is telling you. Just remember, the Heikin Ashi chart may NOT be ideal for those who are day traders or short-term scalpers. The information that it provides may lag the true price of the market too much to be of use to extremely short-term traders like that.