Kagi chart (Jap. か ぎ 足) is used in the technical analysis type of the current asset quotation chart, which displays the direction of the price change in the form of a series of vertical lines of different thickness, connected by short horizontal segments of the same length.
Kagi-line is prolonged after the price in the same direction until the trend changes its direction. After a tendency change in the price movement, an indent is made to the right and the construction of the new Kagi line starts in the opposite direction, which is connected by a horizontal strap to the previous line in the place of the turn.
The Kagi chart was created in Japan in the 1870s with the beginning of the development of the Japanese stock market. This technique was used to determine the movement of the rice price. The word “Kagi” comes from the Japanese art of printing, it is a plate in the form of a Latin letter L, used to align a sheet of paper for printing. Western traders discovered this technique by Steve Nison in his book “Beyond the Limits of Japanese Candles.” A noteworthy feature of Kagi’s schedule is the absence of the time axis.
Construction of the Kagi chart
Totally, in the line of the chart, there are 4 basic elements that form two pairs of groups.
The first pair refers to the lines indicating the direction of the market:
Yin — a thin vertical line, indicating a downward (bear) trend. Sometimes it is marked with red.
Yang — a thick vertical line, signifying an upward (bull) trend. Sometimes it is marked with green;
The second pair corresponds to different types of horizontal Inflection Lines:
Shoulder — a horizontal segment that connects the ascending line with the descending line; local maximum. Waist — a horizontal segment connecting the descending line with the ascending line; local minimum.
How does the thickness/color change on the Kagi graph happen:
* When the Yang line falls below the previous waist, it turns into Yin;
* and, conversely, when Yin rises above the previous shoulder, she turns to Yang.
Types of Kagi displaying
1. Price Type. The closing price of a particular timeframe is traditionally used as input data. For the Kagi chart, the construction type for minimum and maximum is also often used. In this case, the minimum prices (Low) are taken into account when the market moves down, and the maximum (High) – when the market moves up.
2. Time-frame. When choosing a timeframe, it is worth considering that the longer the period is, the stronger the difference between the Kagi chart and the price movement in real time (for example, from a linear chart) will be.
The most approximate to the actual price change will be the Kagi chart based on minute/tick values. At the same time, a graph based on the minimum and maximum prices, rather than closing prices, will be closer to the tick chart. 3. Reversal Amount. The Kagi line reverses at the price of a certain minimum distance from the last value marked on the graph, in the direction opposite to the current one (if the direction is the same – the line is simply prolonged).
When this happens, a new vertical line starts on the Kagi chart. And here is the distance, the reversal parameter, you need to choose. Usually the threshold value of the turn is set in points, or in percentage (from the level of the current price). That is in absolute units (for example, 15 points), or relative (for example, 10%).
The standard values of the reversal amount for the most popular currency pairs are the following (according to the recommendations of the rector of the International Academy of Exchange Trading, V. Safin):
- EUR/USD – 50 points (0.0050);
- GBP/USD – 50 points (0.0050);
- JPY/USD – 60 points (0.0060);
- CHF/USD – 65 points (0.0065).
However, it is worth noting that the most effective method is to determine the reversal amount basing on the current market situation and volatility on the asset under investigation.