You may have some familiarity with a few chart types such as the bar chart, line chart, and candlestick chart, but there is a lesser-discussed chart type known as the Heikin Ashi that may be useful for some traders.
Looks Similar To Traditional Candlesticks
Be very careful when you first look at the Heikin Ashi charts, because they appear so similar to a traditional Japanese candlestick chart when you first take a look at them. Many people get confused and believe that they are one in the same or that they are somehow presenting identical information. However, this is not accurate.
The Heikin Ashi chart is presenting an average of price movement over a period of time. Traditional Japanese candlestick charts are presenting the exact price action that takes place over a given period of time.
Although to a trained eye, they’re easy to spot:
Traditional Japanese candlesticks are end to end. One candle begins where the last candle ended.
Heikin Ashi candlesticks appear to start somewhere in the middle of the last candlestick.
An Average Look at the Market
Instead of attempting to figure out the next movements in the market based on the most recent price action, you might want to take a look at the average movement of the market over a period of time.
Getting a look at the averages, instead of just the most recent price movement, can help you figure out if the current price on offer seems reasonable to you or not.
You will want to pay particular attention to the wicks on the Heikin Ashi chart candlesticks. If you notice a lot of candles with little to no wick, you may be witnessing some market action that indicates a strong trend is taking place (either up or down).
This kind of trend confirmation is exactly what you want to see when you try to figure out how you are personally going to trade your favorite currency pairs.
Your entire trading pattern can be changed by using the Heikin Ashi charts in conjunction with traditional Japanese candlestick charts to see where things might be headed next. You ought to take a look at both and be familiar with both if you want to capitalize on the information that you can get from both of these chart types.
Just remember, they are NOT the same charts, and you need to take the information that you gather from both independently to understand what they are trying to tell you about market conditions.