STOCK GOODIES PLAYS OF THE WEEK

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Heikin-Ashi Calculation

Heikin-Ashi Candlesticks are based on price data from the current open-high-low-close, the current Heikin-Ashi values and the prior Heikin-Ashi values. Yes, it is a bit complicated. In the formula below, a "(0)" denotes the current period. A "(-1)" denotes the prior period. "HA" refers to Heikin-Ashi. Let's take each data point one at a time.



1. The Heikin-Ashi Close is simply an average of the open,
high, low and close for the current period.

HA-Close = (Open(0) High(0) Low(0) Close(0)) / 4

2. The Heikin-Ashi Open is the average of the prior Heikin-Ashi
candlestick open plus the close of the prior Heikin-Ashi candlestick.

HA-Open = (HA-Open(-1) HA-Close(-1)) / 2

3. The Heikin-Ashi High is the maximum of three data points:
the current period's high, the current Heikin-Ashi
candlestick open or the current Heikin-Ashi candlestick close.

HA-High = Maximum of the High(0), HA-Open(0) or HA-Close(0)

4. The Heikin-Ashi low is the minimum of three data points:
the current period's low, the current Heikin-Ashi
candlestick open or the current Heikin-Ashi candlestick close.

HA-Low = Minimum of the Low(0), HA-Open(0) or HA-Close(0)

Before moving to a spreadsheet example, note that we have a chicken and egg dilemma. We need our first Heikin-Ashi candlestick before we can calculate future Heikin-Ashi candlesticks. Therefore, the first calculation simply uses data from the current open, high, low and close. The first Heikin-Ashi close equals the average of the open, high, low and close ((O H L C)/4). The first Heikin-Ashi open equals the average of the open and close ((O C)/2). The first Heikin-Ashi high equals the high and the first Heikin-Ashi low equals the low. Even though this first Heikin-Ashi candlestick is somewhat artificial, the affects will dissipate over time (usually 7-10 periods). StockCharts.com starts its Heikin-Ashi calculations before the first price date on each chart. Therefore, the affects of this first calculation will have already dissipated. The chart above shows examples of two normal candlesticks converting into one Heikin-Ashi Candlestick.