Kagi Chart - A Type of Trading Chart

Suppose the prices are moving in the same direction then the line is extended. However, if prices reverse by a negative amount, a new Kagi line is drawn in a new column. When prices enter a previous high or low, the thickness of the kagi line changes.

Interpretation of Kagi Charts

· A rally is defined as the condition in the market when the demand exceeds the supply. In a Kagi chart it is shown as a series of thick lines.

· A decline is defined as the condition in the market when the supply exceeds the demand. In a Kagi chart it is shown as a series of thin lines.

· A market is said to be in equilibrium when the supply equals demand and is shown by alternating thick and thin lines.

In case of Kagi charts the most basic trading technique is to buy when the Kagi line changes from thin to thick. However, it is in best interest to sell when the Kagi line changes from thick to thin.

The underlying forces are bullish if there is a sequence of higher-highs and higher-lows on a Kagi chart. However, if there are lower-highs and lower-lows it indicates indicate underlying weakness.

To explain this concept a little further let us look at a company XYZ ltd. The first chart shows a high low close bar chart and the second has been plotted as a 0.02 point Kagi chart

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

Plotting a Kagi Chart

· Supposing the price on that day is less than or equal to the starting price then it is indicated by a thin line that is drawn from the starting price to the new close price.

· Supposing the price on that day is greater than or equal to the starting price then it is indicated by a thick line that is drawn from the starting price to the new close price.

The consequent Kagi lines are draw by comparing the closing price to the tip of the previous Kagi line:

· If the price continued in the same direction as the previous line, the line is extended in the same direction. The move does not have to be significant.

· If the price moved in the opposite direction by at least the reversal amount then a short horizontal line is drawn to the next column and a new vertical line is drawn to the closing price.

· If the price moved in the opposite direction of the current column by less than the reversal amount no lines are drawn.

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.