Heikin-Ashi and Renko charts: what they show and hide

Heikin-Ashi and Renko are two ways of drawing price that differ from the standard candlestick. Both filter noise in different ways, and both remove information that a normal candle shows. Knowing what is removed matters more than knowing how the chart looks.

Heikin-Ashi

A Heikin-Ashi candle is calculated from the previous candle as well as the current one:

• Close = (open + high + low + close) ÷ 4
• Open = the average of the previous Heikin-Ashi candle's open and close
• High = the highest of the high, the Heikin-Ashi open and the Heikin-Ashi close
• Low = the lowest of the low, the Heikin-Ashi open and the Heikin-Ashi close

Because each open is averaged from the previous candle, the series is smoothed. Strong trends often appear as runs of same-coloured candles with small wicks. The cost is that a Heikin-Ashi open is not a price that traded. The chart cannot show where price actually was, so a breakout level drawn on it can sit away from the real trades.

Renko

A Renko chart ignores time. It draws a new brick only when price moves a set amount, the box size, in one direction. A brick continues in the same direction when price moves one more box, and a reversal is usually drawn only after price moves two boxes the other way.

The chart hides how long a move took, the wicks, and the path price followed inside each brick. Quiet periods disappear entirely. The box size also decides the shape of the chart: a small box shows many bricks and a large box shows few, so the same market can look different at different settings.

How to use them

Both charts can help show the direction of a trend, but they work best beside a normal candlestick chart rather than in place of one. Use the standard chart for entries, stops and levels, and check any level found on a transformed chart against the standard chart before acting on it. For how candles are read, see how to read candlestick charts.