What is a Kagi Chart?
The Kagi chart is a specific type of technical analysis developed in Japan during the 1870s. It utilizes a series of vertical lines to delineate general levels of supply and demand for certain assets, including the price movement of rice, a core Japanese agricultural product. Thick lines are drawn when the price of the underlying asset breaks over the previous high price and is deciphered as an increase in demand for the asset. Thin lines are utilized to address increased supply when the price falls below the previous low.
What Does a Kagi Chart Tell You?
On the Kagi chart, an entry signal is triggered when the vertical line changes from thin to thick and isn't reversed until the thick line changes back to thin. Like some other chart, these signals ought to be filtered in view of other fundamental or technical criteria, as basically buying or selling each time Kagi chart changes from thick to thin could demonstrate exorbitant and unrewarding.
The line turns thick when another high is made (assuming the line was thin). The line remains thick up to a new low isn't made. The line turns thin when a new low is made, and remains as such until another high is made (turns thick).
The Kagi chart will go all over as the price moves by the reversal amount, or more.
These charts are independent of time and just change course once a predefined reversal amount is reached. The reversal amount is talked about below.
Kagi charts, having no respect for time, enjoy the benefit of reducing noise. Noise is a specific drawback of traditional candlestick charting methods. Since a change in price bearing happens solely after a specific threshold is reached, a few traders might find Kagi charts helpful in terms of separating the trend and review course more plainly.
Contingent upon the trading or charting platform utilized, the Kagi chart line may not be thin or thick, but instead colored, like red and green. The variety changes signal a drop below a recent high or low.
Kagi Chart Reversal Amount
A Kagi chart will reverse heading when the price has moved the other bearing by a predefined amount (or more). Expect a trader is trading Apple Inc. (AAPL) and they maintain that the chart should show when there is a $10 reversal. A Kagi chart can show that.
Assuming the Kagi chart (and price) is moving higher to $300, the Kagi won't reverse until the price drops below $290. On the off chance that the price ascends to $350, the Kagi won't reverse until the price drops below $340. Assuming that the price tumbles to $340 the Kagi won't reverse higher until the price moves back above $350.
The $10 reversal is a moving target. The $10 reversal can be founded on closing prices or highs and lows.
The reversal amount needn't bother with to be a fixed amount. It can likewise be founded on Average True Range (ATR), and that means the reversal amount will change as volatility changes.
At the point when the Kagi chart reverses, it defines a horizontal boundary at the low or high price (close, high or low, contingent upon which is chosen) and afterward reverses. It will keeps on moving vertically until there is a reversal.
These are directional changes on the chart. The lines changing variety or switching from thick to thin highlights when a prior Kagi chart high or low is penetrated.
Kagi Chart Trade Signals
As examined, Kagi chart signals are best utilized related to different forms of analysis. All things considered, Kagi charts in all actuality do have some unique trade signals in light of their arrangements.
Swing highs on a Kagi chart are called shoulders and swing lows are called midsections.
Rising shoulders signal a rising market and a buying opportunity.
Falling midsections show a downtrend.
A Three Buddha base is the Kagi rendition of an inverse head and shoulders and may produce a buying opportunity.
Numerous Kagi designs are covered in the book Beyond Candlesticks by Steve Nison.
Illustration of How to Use a Kagi Chart
The follow chart shows a Kagi chart of Apple in view of 1-hour closing prices. The reversal amount is $5.
The chart shows instances of rising shoulders, which highlight the price rising in an uptrend. The series of falling midriffs signals the price is in a downtrend.
There are likewise three instances of the Three Buddha Bottom highlighted, which signaled buying opportunities.
As a general note, the Kagi changes to green when the price moves over the prior Kagi high and changes to red when the price drops below the prior Kagi low.
The Difference Between Kagi Charts and Renko Charts
Kagi and Renko charts are both in light of reversal amounts. Renko charts are made by blocks that main move at 45-degree angles and never happen beside one another. Every block is a predetermined amount. To get a reversal on the Renko chart the price must move two block distances since there are no side-by-side blocks.
The Limitations of Using Kagi Charts
Kagi charts are sensitive to their settings, and with poor settings they can be just about as loud as other charting methods.
Once a "great" setting is found for a specific asset, that setting may not function admirably on another asset. The trader accordingly may have to track down Kagi settings that work for every asset traded.
For certain traders the trend might be more earnestly to relate to the Kagi charts, with the line thickness (or variety) changing as well as the actual chart moving all over in vertical lines.
While trade signals with Kagi charts will have a few similitudes to other chart types, similar to candlesticks, Kagi charts have unique highlights which might require extra study to exploit.
A significant number of the general buy and signals created by Kagi charts won't be productive over many trades until combined with different forms of analysis to help filter trades.
- The changes in course, changes in line thickness, too as different examples can create buy and sell signals.
- The chart keeps on moving that way until there is price reversal of the predetermined amount in the other heading.
- At the point when the price moves over the prior Kagi high the line turns thick (or green) and when the price drops below the prior Kagi low the line turns thin (or red). The line remains thick or thin until the contrary signal happens.
- Kagi charts change course when there is a price reversal of a predefined amount, or more.