Heikin Ashi vs Candlestick Chart - Ultimate Guide for NinjaTrader 8 Traders

When it comes to technical analysis in trading, chart types play a crucial role in how we interpret market movements. Two of the most popular charting methods are traditional candlestick charts and Heikin Ashi charts. Both are readily available in NinjaTrader 8, but understanding their differences can significantly impact your trading decisions and strategy effectiveness.

In this comprehensive guide, we'll explore both chart types, their unique characteristics, formulas, and how to leverage them effectively within the NinjaTrader 8 platform.

What Are Candlestick Charts?

Traditional candlestick charts, developed by Japanese rice trader Munehisa Homma in the 18th century, display four key price points for each time period:

• Open: The first traded price during the time period
• High: The highest traded price during the time period
• Low: The lowest traded price during the time period
• Close: The last traded price during the time period

Each candlestick provides a visual representation of price action, with the body showing the range between open and close prices, and wicks (or shadows) extending to show the high and low extremes.

Candlestick Chart Characteristics in NinjaTrader 8

In NinjaTrader 8, candlestick charts offer:

• Real-time price action visualisation
• Immediate recognition of bullish/bearish sentiment
• Support for all standard candlestick patterns
• Customisable colours and styling options
• Integration with all NinjaTrader 8 indicators and strategies

What Are Heikin Ashi Charts?

Heikin Ashi, which means "average bar" in Japanese, is a modified candlestick technique that uses averaged price data to create smoother, more trend-focused charts. Unlike traditional candlesticks that use actual OHLC (Open, High, Low, Close) data, Heikin Ashi candles are calculated using averaged values from current and previous periods.

The Purpose of Heikin Ashi

Heikin Ashi charts were designed to:

• Filter out market noise
• Provide clearer trend identification
• Reduce false signals
• Offer smoother price transitions
• Help traders stay in trends longer

Heikin Ashi Formulas

Understanding the mathematical foundation of Heikin Ashi is crucial for proper interpretation. Here are the formulas used to calculate each Heikin Ashi value:

Heikin Ashi Calculations

Heikin Ashi Close (HA_Close):

HA_Close = (Open + High + Low + Close) / 4

Heikin Ashi Open (HA_Open):

HA_Open = (Previous HA_Open + Previous HA_Close) / 2

Heikin Ashi High (HA_High):

HA_High = MAX(High, HA_Open, HA_Close)

Heikin Ashi Low (HA_Low):

HA_Low = MIN(Low, HA_Open, HA_Close)

Initial Values

For the very first Heikin Ashi candle in a series, the HA_Open equals the actual Open price of that period.

Key Differences: Heikin Ashi vs Traditional Candlesticks

Advantages and Disadvantages

Traditional Candlesticks

Advantages:

• Proper price representation to have the right entry/exit points
• Real-time market sentiment feedback
• Large pattern recognition library
• It is appropriate to scalping and short-term strategies
• Price action in real-time analysis

Disadvantages:

• Is able to produce false signals in choppy markets
• The direction of the trend may be hidden by market noise
• Needs experience to sieve out significant signals
• Could cause early withdrawals in popular markets

Heikin Ashi Charts

Advantages:

• Better identification of trends and direction
• Less market noise and misleading signals
• More advantageous to trend-following strategies
• More accessible visual reading to novices
• Assists in holding positions on temporary pullbacks

Disadvantages:

• Poorer timing of entries and exits
• Late signal production
• May miss short-term reversals
• Not suitable for scalping strategies
• Has the ability to hold traders in loss longer

Using Heikin Ashi in NinjaTrader 8

Accessing Heikin Ashi Charts

In NinjaTrader 8, you can easily switch between chart types:

1. Right-click on your chart
2. Select "Properties"
3. Go to the "Data Series" tab
4. Change "Chart Style" from "CandleStick" to "HeikinAshi"
5. Apply your changes

NinjaTrader 8 Heikin Ashi Features

NinjaTrader 8 offers several Heikin Ashi-specific features:

• Colour customisation: Modify bullish/bearish candle colours
• Wick styling: Adjust shadow appearance
• Overlay capabilities: Combine with indicators optimised for Heikin Ashi
• Strategy compatibility: Use with automated trading strategies
• Multi-timeframe analysis: Compare Heikin Ashi across different timeframes

Trading Strategies: When to Use Each Chart Type

So far, we have covered what each of these charts is and how they function. Now, it’s the decision of you, a trader, to pick the right chart to use for specific scenarios. 

Best Use Cases for Traditional Candlesticks

Scalping and Day Trading

Traditional candlesticks are best suited in short-term trading situations where entry and exit points are vital. The raw price action gives traders the micro detail they require in real-time decision-making, enabling them to take advantage of minor price changes during the trading session.

News Trading

Traditional candlesticks provide instant insight into market reactions when markets respond to breaking news or economic announcements. They perfectly reflect price spikes, gaps and the volatile nature that usually accompanies major news events, providing traders with the exact information they require to traverse these rapidly changing environments.

Support and Resistance Trading

In strategies that are based on important price levels, the traditional candlesticks offer the precise price information required to place stops and targets. They provide distinct breakout confirmations and allow proper identification of reversal patterns at key support and resistance levels.

Best Use Cases for Heikin Ashi

Trend Following

Heikin Ashi candles are especially useful in longer-term position trading and swing trading strategies. Their smoothed outlook makes it simpler to spot trend continuations and be dedicated to positions in protracted trending markets, lessening the inclination to get out too soon on minor pullbacks.

Reducing Emotional Trading

Heikin Ashi assists traders in being disciplined in their trending markets by eliminating most of the market noise that can lead to impulsive trading. The smoother visual display lessens the emotional pull of short-term price changes so traders can concentrate on the overall trend of the market.

Beginner Trading

The visual identification of trends and the simplification of market analysis by Heikin Ashi are often helpful to new traders. Its simplified form allows learning the basic principles of trend-following without being overwhelmed by the price changes on a minute-by-minute basis that traditional candlesticks present.

Interpreting Heikin Ashi Signals in NinjaTrader 8

Strong Uptrend Signals

The strongest uptrend indicators are those that are represented by a series of green or white candles with very little lower shadows or with no shadows. In such formations, the low price of each candle is usually the same as the opening price, resulting in a clean visual formation that shows that there is continued buying pressure. The smallness or absence of upper shadows also serves to further affirm the power of the upward momentum because buyers are always driving prices upwards in every session.

Strong Downtrend Signals

On the same note, powerful downtrends are expressed by the presence of successive red or black candles with no upper shadows. The most distinctive feature is that the high price of each candle is equal to the opening price, which proves that sellers are in control since the beginning of the session. The absence or the presence of small lower shadows supports this bearish mood, indicating that any buying is easily overpowered by the selling pressure.

Trend Weakness and Reversal Signals

As the trend that has been in force is about to slow down, Heikin Ashi candles begin to show clear signs of warning. These include:

• The fact that both upper and lower shadows appear on candles means that buyers and sellers are more indecisive
• Candle bodies that are getting smaller and smaller, indicating diminishing confidence in the existing direction
• Colour changes that interrupt the trend of the dominant trend are often the points of possible reversal

Such reversal signals are especially important when they are seen at major support or resistance points and traders can have an early indication that the current trend may be fading and a reversal may be on the cards.

Combining Both Chart Types in NinjaTrader 8

Many professional traders use both chart types simultaneously:

Multi-Chart Setup

1. Primary chart: Heikin Ashi for trend identification
2. Secondary chart: Traditional candlesticks for precise timing
3. Same timeframe: Compare signals between both charts
4. Different timeframes: Use Heikin Ashi on higher timeframes for trend, candlesticks on lower timeframes for entries

Integration with NinjaTrader 8 Tools

Indicators Compatibility:

• Most NinjaTrader 8 indicators work with both chart types
• Some indicators may require adjustment for Heikin Ashi
• Consider indicators specifically designed for Heikin Ashi

Strategy Development:

• Test strategies on both chart types
• Optimize parameters for each chart style
• Consider hybrid approaches using both methodologies

Common Mistakes to Avoid

With Traditional Candlesticks

• Over-trading based on every price movement
• Ignoring overall trend direction
• Relying solely on single candle patterns
• Not considering market context

With Heikin Ashi

• Using for scalping strategies
• Ignoring precise entry/exit levels
• Over-relying on smoothed data
• Not confirming signals with other analysis

Conclusion

Both Heikin Ashi and traditional candlestick charts have their place in a trader's toolkit, especially when using a comprehensive platform like NinjaTrader 8. The choice between them depends on your trading style, timeframe, and objectives.

Choose Traditional Candlesticks when:

• You need precise entry and exit points
• Trading short-term strategies
• Scalping or day trading
• Analyzing immediate market reactions

Choose Heikin Ashi when:

• Focusing on trend identification
• Swing trading or position trading
• Learning to trade trends
• Wanting to reduce market noise

Some of the most successful traders tend to use both, taking advantage of the strong points of each type of chart to apply to different parts of their trading strategy. The versatile charting features of NinjaTrader 8 allow easy toggling between the two styles, or even both at once to provide a complete view of the market.

Keep in mind that no type of chart or indicator is a guarantee of success. Never use any of your selected charting techniques without the appropriate risk management, thorough market analysis, and a well-proven trading plan. Regardless of your preference between Heikin Ashi and traditional candlesticks, or both, consistency in the use and constant learning will be the factor in your success in trading.