Heikin Ashi vs Traditional Candlesticks

Think about looking at two charts next to one another. One is jagged and jumpy. You can easily see every little price wiggle. The second chart is much smoother. The candles are uniform, and they move in one direction until an actual reversal looks to emerge. Which chart would help you remain calm, not second-guess yourself, and identify real trends?

For many traders, a smoother alternative would be Heikin-Ashi. However, traditional candles have their own merits. In this article, we will explore the underlying methodology of both chart types, the pros and cons of each, and the circumstances for favouring one over the other. When finished, you will have a better understanding of a charting style that works for your particular trading style.

What are Traditional Candlesticks?

Traditional candlestick charts (aka Japanese candlestick charts) are the most recognisable form of chart in trading. Traditional candlestick charts represent candles based on time (minutes, hours, days, etc.) with four prices displayed: Open, High, Low, and Close (OHLC).

• The body shows the OHLC in that order.

• The wicks (or shadows) illustrate the reached high and low of the period.

• The candlestick usually has an associated colour—green or red—related to positive and negative price movement, respectively.

Since each candle is independent (has no relationship to previous candles), each chart reflects every blink, jolt and wiggle in market sentiment. This is particularly powerful for traders who rely on chart patterns like the Doji, Hammer, and Engulfing, among others, to determine entry and exit points with precision.

What are Heikin Ashi Candles?

Heikin Ashi is derived from the Japanese term for "average bar." Heikin Ashi does not inherently show price data using open, high, low and close, but instead smooths or averages the results. With a Heikin Ashi chart, each candle is based on both the current period price and the prior Heikin Ashi candle's price.

Here is a simple example of how those candles are calculated.

• The HA-Close is calculated using the average open + high + low + close of the current period.

• The HA-Open is the midpoint of the previous HA candle (e.g. average of previous HA-Open + previous HA-Close).

• HA-High is the highest of the period's high, HA-Open, and HA-Close.

• HA-Low is the lowest of the period's low, HA-Open, and HA-Close.

Due to this unique calculation, the Heikin Ashi chart is typically smoother compared to traditional candlesticks, resulting in fewer false wiggles and breaks.

Key Differences Between the Two

Here are the main distinctions that can impact how you trade:

Advantages & Disadvantages: What You Gain, What You Could Lose

To use the right tool, it is worth reflecting on what you gain vs what you might lose with Heikin Ashi vs traditional sticks.

Advantages of Heikin Ashi

1. Clearly See the Trend

Heikin Ashi reduces noise, allowing you to see where the market is heading without getting caught up in every little wiggle.

2. Lower Chance of False Signals

Small violent price moves get smoothed into the next candle, resulting in lesser shifts of price movements when the colour changes, which may cause you to exit too soon and/or enter too late.

3. Better Control of Your Emotions

It is easier to make emotional trades and swing for the fences when the chart looks up and down like a rollercoaster, while seeing a smoother trend helps manage that behaviour – clearer trends tend to create anxiety rather than calm.

4. Strong Trends look Stronger

When you have long strings of the same colour (even better, shorter to no shadows), your brain recognises that, and it automatically helps with trend and trend strength.

Disadvantages of Heikin Ashi

1. No Exact Price Movement

You will not specifically know where the price opened or closed during a time period -- when price movement is everything, it could be misleading in tight setups.

2. Lags Behind

Because averaging produces lags in time, it is possible with rapid price reversals to get Heikin Ashi signals, app., so there could be lags in reversal signals.

3. Not the Best for Scalping or Rapid Price Movement

Because traditional sticks are more suitable for lower and exact price action periods or view quantity measurement due to the volatility actualised in sticks.Sharp Moves & Missing Price Gaps

Price gaps (showing a price move without trades occurring in between) are visible on candlestick charts but are less pronounced or removed with a Heikin Ashi chart based on the averaging used.

When to Use Each Chart Type?

There is not one "best" one for all situations. Here are some strategies for types of trading styles, timeframes, risk appetite, etc.

• Use Traditional Candlesticks When:

o You need accurate entries/exits (e.g., you use exact price support and resistance levels, candlestick patterns)

o You are trading small timeframes (e.g., minutes, scalp) and want immediate feedback.

o Price gaps, wicks, and shadows matter to your strategy.

• Use Heikin Ashi When:

o Your goal is to ride a trend, avoiding noise, which the gaps/wicks/shadows provide, as they provide messy information.

o You want to observe overall market direction and removal of visuals for clarity (e.g., daily or hourly).

o You care more about taking the price move (rather than exact timing for entry/exit).

o You use it in conjunction with a stack on another indicator (volume, momentum, etc.) for clues/reversal/signal.

Some strategies for traders

Here are some tips to leverage these charts.

1. Use both perspectives

Heikin Ashi is for clarity for trends; check candlesticks to add accuracy for entries/exits.

2. Look for candle shadows

With Heikin Ashi, a candle with no lower wick while in an uptrend (or a candle with no upper wick in a downtrend) is often a robust signal. On the other hand, a wick on either end of the candlestick, or a small body, represents indecision or a reversal of the trend.

3. Use confirmation indicators

RSI, moving averages, volume - all these indicators confirm what the chart is presenting. If Heikin Ashi says "Trend," confirm it with momentum or volume.

4. Be mindful of the time frame

On very short time frames, both chart types can get noisy or misleading. Heikin Ashi may lag even more on petite time frames. On more extended time frames, the smoothing really works to your advantage.

5. Have clear exit rules

Because of lag, you will want to define what a trend reversal looks like for you. A colour change, a shadow, and another confirmation from a different indicator, for example. This can help you significantly avoid being taken out of trades or exiting too late if you're delayed.

Common Misconceptions

• "Heikin Ashi conceals important price information. Therefore, it is bad."

No, that is not always the case. Yes, it does not provide all price information exactly, but many trend traders feel the trade-off is worth it for having less noise.

• "Traditional candlesticks are almost always better because they are 'real'.

In reality, "real" isn't always better. In fact, more detail might lead to distraction and might make you exit trades too early. What's more important is to use details that are appropriate for your strategy.

• "one is always better"

It depends on the market you are trading, your timeframe, your temperament, how much noise you can tolerate, and how patient you can be.

Conclusion

Heikin Ashi and traditional candlesticks are both powerful charting tools, and serve different purposes. Traditional candlestick charts act like a microscope - they are remarkable in terms of revealing every tiny detail, including exact trades and patterns. Heikin Ashi represents a telescope: it smoothes out noise and helps you remain in tune with trends, and helps to read a moving market better.

Suppose I had one recommendation: use traditional candlestick charts when you need speed/exactitude. Use Heikin Ashi charts when you need clarity in the trend and calmness of mind to avoid being whipsawed by small details in the market.

In the end, the best traders do not rely on one chart formulation exclusively. They make adjustments. They combine. They test what is and what has been working for them. So, try them and watch your trading improve. Charting will become an extension of your strategy.