Obbertan

Study on Special Price Bars

Produced by: Charles Villeneuve, Head Scientist

Introduction

This document provides an analysis of two types of special price bars commonly used in financial charting: Heiken Ashi bars and Line Break bars, with a focus on their calculation and whether their Open, High, Low, and Close (OHLC) values represent actual traded market prices, particularly within the context of platforms like MultiCharts.

Part 1: Heiken Ashi Bars

Heiken Ashi, meaning “average bar” in Japanese, is a candlestick technique used to filter market noise and identify trends more clearly. The OHLC values of Heiken Ashi bars are calculated based on the previous Heiken Ashi bar and the current standard candlestick bar.

Heiken Ashi Calculation Formulas (Standard & MultiCharts)

Platforms like MultiCharts typically adhere to the standard Heiken Ashi calculation formulas:

  • Heiken Ashi Close (HA-Close)
(Open(0) + High(0) + Low(0) + Close(0)) / 4

This is the average price of the current standard bar.

  • Heiken Ashi Open (HA-Open)
(HA-Open(Previous Bar) + HA-Close(Previous Bar)) / 2

This is the midpoint of the body of the previous Heiken Ashi bar.

  • Heiken Ashi High (HA-High)
Max(High(0), HA-Open, HA-Close)

This is the highest value among the current standard bar’s High, the current HA-Open, and the current HA-Close.

  • Heiken Ashi Low (HA-Low)
Min(Low(0), HA-Open, HA-Close)

This is the lowest value among the current standard bar’s Low, the current HA-Open, and the current HA-Close.

Analysis: Can Heiken Ashi Values Match Standard Bar Values?

While all Heiken Ashi values are calculated, the question is whether these calculated values can ever be identical to the corresponding values of the standard bar for the same period.

  • HA-Open vs. Standard Open

Generally, no. The HA-Open is derived from the previous HA bar and is unlikely to match the current standard bar’s Open except by coincidence.

  • HA-Close vs. Standard Close

Yes, this is possible if Open(0) + High(0) + Low(0) = 3 * Close(0). For example, if a standard bar has Open(0)=10, High(0)=12, Low(0)=8 , and Close(0)=10 , then HA-Close = (10+12+8+10)/4 = 10. In this case, HA-Close equals Close(0).

  • HA-High vs. Standard High

Yes, this is frequently the case. If the actual High(0) of the standard bar is greater than both the calculated HA-Open and HA-Close for that period, then HA-High will be equal to High(0).

  • HA-Low vs. Standard Low

Yes, this is also frequently the case. If the actual Low(0) of the standard bar is lower than both the calculated HA-Open and HA-Close for that period, then HA-Low will be equal to Low(0).

Conclusion for Heiken Ashi

The HA-High and HA-Low are the most likely components to represent an actual traded price (the High or Low of the period) from the standard bar.

The HA-Close can, but less frequently, and the HA-Open generally does not.

Part 2: Line Break Bars

Line Break charts are price-based charts that disregard time intervals and focus on significant price movements. New lines (bars) are drawn based on whether the closing price breaks above the high or below the low of a specified number of preceding lines.

Line Break Chart Construction Rules (Typical Implementation, e.g., in MultiCharts)

  • Number of Lines: A key setting is the “Number of Lines to Break” (e.g., 3-Line Break).
  • New Up Line: A new up line is drawn if the current closing price of the underlying data exceeds the high of the previous ‘n’ Line Break bars.
    • Open: The Close of the previous Line Break bar.
    • Close: The current closing price of the underlying data that triggered the break.
    • High: The Close of the new up line.
    • Low: The Open of the new up line.
  • New Down Line: A new down line is drawn if the current closing price of the underlying data falls below the low of the previous ‘n’ Line Break bars.
    • Open: The Close of the previous Line Break bar.
    • Close: The current closing price of the underlying data that triggered the break.
    • High: The Open of the new down line.
    • Low: The Close of the new down line.
  • No New Line: If the current closing price does not break the high or low of the previous ‘n’ lines, no new Line Break bar is drawn. The chart only updates when a break occurs.

Analysis: Can Line Break OHLC Values Be Considered “Real” or Match Standard Bar Values?

  • Line Break Open (LB-Open)

The LB-Open is the closing price of the previous Line Break bar. Since the close of any Line Break bar is an actual closing price from the underlying data (see LB-Close below), the LB-Open is an actual historical closing price.

  • Line Break Close (LB-Close)

The LB-Close is the actual closing price of the underlying data (e.g., daily close, hourly close) that caused the new Line Break bar to be drawn.

  • Line Break High (LB-High)

For an up-bar, the LB-High is its LB-Close. For a down-bar, the LB-High is its LB-Open. In both cases, it represents an actual historical closing price.

  • Line Break Low (LB-Low)

For an up-bar, the LB-Low is its LB-Open. For a down-bar, the LB-Low is its LB-Close. In both cases, it represents an actual historical closing price.

Conclusion for Line Break Bars

All four OHLC values (Open, High, Low, Close) of a Line Break bar represent actual historical closing prices from the underlying data series. They are not calculated averages or synthetic values in the way some Heiken Ashi components are. The Line Break chart filters price action, so not every standard bar close will form a new Line Break bar, but when a Line Break bar is formed, its OHLC values are derived directly from actual closing prices of the underlying instrument.

Real-time Formation and Stability of Line Break Bars

  • Definitive Close of Previous Bar:

The close of a completed Line Break bar is definitive and represents an actual closing price from the underlying data. It does not repaint.

  • Formation of a New Bar:

A new Line Break bar is confirmed and drawn only when the closing price of the current underlying standard bar meets the break criteria. Until the underlying bar closes, any potential new Line Break bar is provisional.

  • Intra-bar Fluctuation vs. Bar Disappearance:

During the formation of the underlying standard bar, its price will fluctuate. A provisional Line Break bar might appear to form based on intra-bar price movements if the platform attempts to anticipate the close. However, this provisional bar is not confirmed until the underlying standard bar actually closes. If the price moves back before the close, the provisional bar might not form, or it might change.

The key is that finalized Line Break bars are based on confirmed closes. Therefore, a forming Line Break bar (based on intra-tick data before the underlying bar closes) could indeed change or disappear if the conditions for its formation are no longer met by the time the underlying bar closes.

MultiCharts, like most robust charting platforms, typically forms Line Break bars based on the confirmed close of the underlying price bars to ensure chart stability and prevent repainting. This means that while a platform could show a provisional bar based on intra-bar price movements, the finalized Line Break bars used for historical analysis are based on definitive closing prices.

Summary of Real-Time Line Break Bar Behavior

  • The close of a completed Line Break bar is definitive and does not repaint.
  • The open of a new Line Break bar (which is the close of the previous Line Break bar) is definitively set once that previous bar is complete.
  • A new Line Break bar is only confirmed and drawn once the underlying price data provides a closing price that triggers the break rule. It generally does not appear and disappear based on intra-bar real-time ticks in a way that makes historical data unreliable; its formation is tied to underlying bar closes.

Overall Conclusion

Both Heiken Ashi and Line Break charts offer unique ways to visualize price action, distinct from standard candlestick charts.

  • Heiken Ashi bars smooth price data, with their High and Low values most likely to reflect actual market highs and lows, while their Open and Close are more heavily calculated.
  • Line Break bars, on the other hand, have all their OHLC components representing actual historical closing prices from the underlying data, offering a filtered view of significant price movements.

Understanding these construction methods is crucial for traders and analysts when using these special bar types for market analysis and strategy development, especially in platforms like MultiCharts which adhere to these standard calculation principles.

Disclaimer: This study is for informational purposes only and should not be considered financial advice. Trading financial markets involves risk.

Copyright © 2025 Charles Villeneuve