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Kagi

Overview

Kagi charts are believed to have been created around the time that the Japanese stock market began trading in the 1870s. Kagi charts display a series of connecting vertical lines where the thickness and direction of the lines are dependent on the price action. The charts ignore the passage of time.

If prices continue to move in the same direction, the vertical line is extended. However, if prices reverse by a "reversal" amount, a new kagi line is then drawn in a new column. When prices penetrate a previous high or low, the thickness of the kagi line changes.

Kagi charts were brought to the United States by Steven Nison when he published the book, Beyond Candlesticks.


Interpretation

Kagi charts illustrate the forces of supply and demand on a security:

The most basic trading technique for kagi charts is to buy when the kagi line changes from thin to thick and to sell when the kagi line changes from thick to thin.

A sequence of higher-highs and higher-lows on a kagi chart shows the underlying forces are bullish. Whereas, lower-highs and lower-lows indicate underlying weakness.


Example

The following chart shows a 0.02-point kagi chart and a classic bar chart of Euro Dollars.


I drew "buy" arrows on the bar chart when the kagi lines changed from thin to thick and drew "sell" arrows when the lines changed from thick to thin.


Calculation

The first closing price in a kagi chart is the "starting price." To draw the first kagi line, today's close is compared to the starting price.

To draw subsequent lines, compare the closing price to the tip (i.e. bottom or top) of the previous kagi line:

If a thin kagi line exceeds the prior high point on the chart, the line becomes thick. Likewise, if a thick kagi line falls below the prior low point, the line becomes thin.


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