Heikin Ashi candles are calculated using a modified formula based on two-period averages. The open, close, high, and low of each Heikin Ashi candle are calculated as follows:
Open: The open of a Heikin Ashi candle is equal to the midpoint of the previous candle's open and close.
Close: The close of a Heikin Ashi candle is equal to the average of the open, high, low, and close of the current period.
High: The high of a Heikin Ashi candle is equal to the highest value from the high, open, or close of the current period.
Low: The low of a Heikin Ashi candle is equal to the lowest value from the low, open, or close of the current period.
The first Heikin Ashi candle is calculated using the open, high, low, and close of the first period. The subsequent Heikin Ashi candles are calculated using the open, high, low, and close of the current period and the close of the previous candle.
Heikin Ashi candles are designed to smooth out market noise and make it easier to identify trends. The modified formula used to calculate Heikin Ashi candles gives more weight to the close of the previous candle, which can help to reduce the impact of volatility on the candles.
Here is an example of how Heikin Ashi candles are calculated:
Period 1: Open = 100, High = 110, Low = 90, Close = 105
Period 2: Heikin Ashi Open = 102.5, Heikin Ashi Close = 107.5, Heikin Ashi High = 110, HeikinAshi Low = 95
As you can see, the Heikin Ashi open for period 2 is calculated by averaging the open and close of period 1. The Heikin Ashi close for period 2 is calculated by averaging the open, high, low, and close of period 2. The Heikin Ashi high and low for period 2 are simply the highest and lowest values from the open, high, low, and close of period 2.
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