Kagi charts are used for the technical analysis of a current asset quotation chart. It displays the price change’s direction as a series of vertical lines of varying thickness, and these are connected by short horizontal lines of the same length.
The Kagi-line is extended after the current price in the same direction until the trend’s direction changes. When a tendency changes in the price movement, an indent is created to the right of the line and a new Kagi line is started in the opposite direction. The previous and new lines are connected with a horizontal strap at the end of the previous line and the beginning of the new line.
Kagi chart Construction
The chart consists of 4 basic elements that are grouped into two pairs.
The first pair contain the lines that indicate the market’s direction:
Yang — a thick vertical line that signifies a bull (upward) trend. This line if often colored green;
Yin — a thin vertical line that signifies a bear (downward) trend. This line if often colored red.
The second pair consists of different types of horizontal Inflection Lines:
Waist — a horizontal segment line that connects a descending line with the next ascending line at the local minimum.
Shoulder — a horizontal segment line that connects an ascending line with the next descending line at the local maximum.
Line color and thickness changes on the Kagi graph:
- When a Yin line moves higher than the previous shoulder, it turns to a Yang line.
- When a Yang line drops to less than the previous waist, it turns into a Yin line.
Kagi displays
- Time-frame. With a time-frame display, it should be noted that a longer period will result in a bigger difference between the price movement in real time and the Kagi chart.
- Price Type. Generally, the closing price of a specific timeframe is used as input data. With Kagi charts, the maximum and minimum prices are however also often used. In these cases, the maximum price (High) is taken into account when the market moves up, and the minimum price (Low) is used when the market moves down.
Reversal Amount
When a reversal occurs, a new vertical line is started on a Kagi chart. The reversal parameter (the distance) for this has to be chosen. The threshold value of the reversal is usually set in points, or as percentage from the current price’s level. This is done in absolute units (e.g. 15 points), or relative units (e.g., 10%).
Standard values recommended for the reversal amounts for some popular currency pairs are shown below:
- GBP/USD – 50 points (0.0050);
- EUR/USD – 50 points (0.0050);
- CHF/USD – 65 points (0.0065).
- JPY/USD – 60 points (0.0060);
It should however be noted that the most effective method is to choose a reversal amount based on the current market volatility and the exact situation of the asset being analyzed.