Sometimes it is difficult to read/analysis chart because of Gap Up/Gap Down and as a result of the indicators also give a false signal for buy and sell. False signal because maximum indicator calculations based on closing price. But in Heikin Ashi closing price in an average of current price of Close, High, Low and Open. Now let’s concentrate on how Heikin Ashi formed.
Heikin Ashi Formation –
First, we will see how to find the closing price of Heikin Ashi.
1. Heikin Ashi close is an average of Open, High Low and Close of the current period.
Heikin Ashi Close = / 4
2. Heikin Ashi Open is Midpoint of Open and Close of the prior Heikin Ashi candle
3. Heikin Ashi High is the Maximum value of current normal candles High.
4. Heikin Ashi Low is the current lowest value of current normal candles Low.
Now one of the most important thing which will be a little bit confusing how to calculate the value of close before we calculate next candle. Here the first calculation of close is done by using the current price of high, low, open and close. Now there are few interpretation we have to understand, if we understand this interpretation it will be very easy to identify the trend and how to take a position.