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What are the limitations of Heikin Ashi?
Unfortunately, Heikin Ashi is not the holy grail.
Heikin Ashi definitely ain’t no Ed Sheeran song. It ain’t perfect.
Just like any other tool used for technical analysis, Heikin Ashi is useful but it does have some weaknesses or limitations.
Let’s go over what these limitations are.
Heikin Ashi candlesticks do not show true prices.
While the traditional Japanese candlesticks are derived from the actual prices, Heikin Ashi candlesticks are NOT.
Because the Heikin Ashi candlesticks are averaged, they do NOT show the exact open and close prices for a particular time period.
Let’s show an actual example.
Here’s a Heikin Ashi chart of EUR/USD on the daily (1D) timeframe:
Focus on the last candlestick. A couple of things to notice:
- The candle is red. Which means the candle closed lower than it opened.
- Its open price was 1.09005.
- Its close price was 1.08531.
Now let’s look at a daily chart of EUR/USD using a traditional Japanese candlestick chart:
Focus on the last candlestick.A couple of things to notice:
- The candle is green.Which means the candle closed higherthan it opened.
- This is REALITY. The EUR/USD pair actually ended up for the day. Compare this to Heikin Ashi, where it showed a red candle.
- Its open price was 1.08373.
- Its close price was 1.08706.
Let’s review what we just observed:
| Chart Type | Last Candlestick | Open Price | Close Price |
| Heikin Ashi Candlestick | Red | 1.09005 | 1.08531 |
| Traditional Candlestick | Green | 1.08373 | 1.08706 |
Do you see the difference?
Even though the “real” candle closed green, Heikin Ashi is signaling that EUR/USD is still in a downtrend.
Make sure you know what price you’re looking at.
Since you can’t see the actual open and close prices, some traders prefer to use a Heikin Ashi chart as more of an INDICATOR rather than a price chart itself.
Heikin Ashi charts obscure actual price information.
This limitation is related to the first one.
The closing price is considered important for many traders, but the actual closing price is NOT displayed on a Heikin Ashi candlestick.
As a review, here’s how the Close price is calculated:
Close = (Open+High+Low+Close) / 4
You only see the averaged closing price.
Make sure you’re aware of the actual closing price, and not just the averaged value.
This can be done easily by switching back to a regular Japanese candlestick chart.
Heikin Ashi charts may not be responsive enough for day traders or scalpers.
Since Heikin Ashi candlestick requires price information from two periods, a trade setup takes longer to develop.
This isn’t really an issue for longer-term traders, like swing traders or position traders, who have more time to let their trades develop.
But it might be an issue for shorter-term traders like day traders and scalpers.
For example, scalpers need to exploit quick price moves so they may find that Heikin Ashi charts are not responsive enough for their type of trading.
FAQs
Limitations of the Heikin-Ashi Technique
What are the limitations of Heikin Ashi? ›
Drawbacks of Heiken-Ashi Charts
Use of averages: Heiken-Ashi charts use averages of prices and do not show actual open or close prices. Some price data is lost with averaging and, therefore, may not be helpful to all categories of traders, such as scalpers or day traders.
What is the problem with Heiken Ashi? ›
Heikin Ashi candlesticks do not show true prices.
While the traditional Japanese candlesticks are derived from the actual prices, Heikin Ashi candlesticks are NOT. Because the Heikin Ashi candlesticks are averaged, they do NOT show the exact open and close prices for a particular time period.
How accurate is Heikin Ashi? ›
Reliability: Heikin-Ashi is a very reliable indicator, providing accurate results. It uses historical data, which is also quite dependable. Filtering of market noise: The indicator filters out market noise and reduces small corrections making the signals more transparent.
Do professional traders use Heikin Ashi? ›
There are countless ways to trade financial markets, but many traders favour the Heikin-Ashi indicator as a fundamental part of their technical trading strategies, and for good reason.
Is Heiken Ashi a lagging indicator? ›
The key advantage of the Heiken Ashi is that it filters out the bad signals (market noise) and makes it easier for traders to spot good trade signals. As a result, market analysis becomes easier. The drawback of the Heiken Ashi indicator is that it lags behind the price.
What is the best time frame for Heiken Ashi candles? ›
Heikin Ashi charts can be used on any timeframe. The calculation is applied to the chosen time frame. Swing traders typically look at hourly, four-hour, or daily charts. The possible strategy discussed above could be applied to stocks, forex, commodities or stock indexes.
What is the best Heiken Ashi strategy? ›
Look For Candlesticks With No Shadows
This is one of the best-performing Heiken Ashi trading strategies. Candlesticks with no lower shadows are a highly probable signal that a strong bullish trend is forming.
Which is better Renko or Heiken Ashi? ›
- Timeframe: Renko charts are more suitable for longer-term trend analysis, while Heikin Ashi charts are effective for shorter-term trading strategies. - Risk tolerance: Renko charts may provide a clearer picture of trends but can result in delayed entry or exit points.
Can I use Heiken Ashi for scalping? ›
Heiken Ashi candlesticks' OHLC prices are calculated differently from Japanese candlesticks. Use Heiken Ashi candlesticks as trend filters to know when to be a buyer or seller. Avoid using Heiken Ashi for scalping as the candles take time to form and are not exact open or close prices of the period.
Rules in Heikin-Ashi
White body sequence = uptrend. Black body sequence = downtrend. Strong bullish trend = Large white bodies and no lower shadows. Strong bearish trend = Large black bodies with no upper shadows. When the trend weakens, small bodies appear with possible upper and / or lower shadows.
What is the secret of Heikin Ashi? ›
Instead of using the open, high, low, and close like standard candlestick charts, the Heikin-Ashi technique uses a modified formula based on two-period averages. This gives the chart a smoother appearance, making it easier to spots trends and reversals, but also obscures gaps and some price data.
Is it better to use Heikin Ashi or candlestick? ›
Well, it depends; if you are looking for raw and granular information with all the patterns, go for the normal candlestick chart. However, if you are looking specifically to spot trends and prefer a smooth price and low noise, then Heikin-Ashi is the right chart for you.
What are the disadvantages of Heiken Ashi? ›
Cons: Lack of detail: Heikin-Ashi charts smooth out the price movements, which can be a disadvantage for traders who want to see the details of each candlestick.
What indicators pair well with Heikin Ashi? ›
Trading is preference-based, so the indicators that work best with Heikin-Ashi are the ones you are most familiar with and practiced with. Moving averages, Bollinger bands, and the Relative Strength Index are examples of indicators that can be used with Heikin-Ashi.
Is trading Heikin Ashi profitable? ›
The Heikin-Ashi technique is particularly effective for strategies focused on trend following due to its ability to smooth out minor fluctuations and highlight the underlying movement. These characteristics make it suitable for traders looking to minimize loss from false signals during volatile market sessions.
Is Heikin Ashi candle good or bad? ›
Heikin-Ashi is a candlestick pattern technique that aims to reduce some of the market noise, creating a chart that highlights trend direction better than typical candlestick charts. The downside to Heikin-Ashi is that some price data is lost with averaging, which could affect risk.
Is Heiken-Ashi better than regular candlestick? ›
Heikin-Ashi has a smoother look because it is essentially taking an average of the movement. There is a tendency with Heikin-Ashi for the candles to stay red during a downtrend and green during an uptrend, whereas normal candlesticks alternate color even if the price is moving dominantly in one direction.
What is the best indicator to use with Heiken-Ashi? ›
What are the best Indicators to use with Heikin Ashi? Another approach of using the Heikin-Ashi is to use technical indicators like the moving averages, Bollinger bands, and the Relative Strength Index (RSI). The idea of using these indicators is similar to how they are used in traditional candlestick patterns.
