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The Heikin-Ashi technique--"average bar" in Japanese--is one of many techniques used in conjunction with candlestick charts to improve the isolation of trends and to predict future prices.

A regular candlestick chart gives you a candlestick for each time interval, which tells you opening and closing prices (filled or red candlestick if closing at the bottom, empty or green or empty candlestick if closing at the top), as well as highs and lows (vertical line that sticks out of the candlestick). The Heikin-Ashi chart is constructed like a regular candlestick chart, except the open, close, high and low are changed by a modified formula:

• xClose = (Open+High+Low+Close)/4
  o Average price of the current bar
• xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2
  o Midpoint of the previous bar
• xHigh = Max(High, xOpen, xClose)
  o Highest value in the set
• xLow = Min(Low, xOpen, xClose)
  o Lowest value in the set

The Heikin-Ashi technique is extremely useful for making candlestick charts more readable--trends can be located more easily, and buying opportunities can be spotted at a glance. The charts are constructed in the same manner as a normal candlestick chart, with the exception of the modified bar formulas. When properly used, this technique can help you spot trends and trend changes from which you can profit!