Hi again, Norm
I want to discuss that image I posted in my first reply to this thread, back on December 31.
Ever since I posted that image, something about it has bothered me. As I did some research on the Heiken-Ashi formulas, I discovered what’s wrong with that image.
The image purports to show how HA charts smooth out some of the “noise” in Japanese candlestick charts. So far, so good. Chart “noise” is a fact of life, and HA charts do smooth out some of it.
Bur, here’s where the problem arises. To illustrate that smoothing, the image specifically highlights major differences in the highs and lows in the HA chart versus the Japanese candlestick chart. At first glance, what the image is showing looks perfectly reasonable, and appears to be a good illustration of the differences you observed in your original post. But, the image is fake.
While there are differences in the highs and lows displayed on a HA chart, versus the highs and lows on the corresponding candlestick chart, the “differences” shown in that image from forextrainggroup .com are IMPOSSIBLE. The image has been doctored.
It’s clear from the formulas for Heiken-Ashi highs and lows that:
HA highs cannot be lower than the actual highs. Yet, the red and green ovals in the forextrainggroup image purport to show exactly that.
And, HA lows cannot be higher than the actual lows. Yet, the blue oval and the gold rectangle purport to show that impossible situation.
As soon as the HA formulas proved to me that the image was doctored, I regretted having posted that image. If I could edit my post, I would delete that image, and rewrite the post. But, the window of opportunity for editing that particular post has closed.
None of this is meant to imply that HA highs and lows are the same as actual highs and lows. In many cases, they are not. Rather, HA highs can actually be higher than actual highs, and HA lows can actually be lower than actual lows. And, in many cases, this is exactly what we see – as you have noted.
I’m still working on a post detailing the construction of Heiken-Ashi candles, along with some comments on what traders can and can’t do with Heiken-Ashi charts. Since all of that sort of veers away from the original topic of your thread, I might post that analysis in a new thread. The way it’s developing, it will be a rather lengthy analysis. Maybe I’ll post it in several parts, in a series of posts.