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How to Plot a Kagi Chart

kagi chart

The Kagi chart is a type of chart that is used to follow price changes and make stock purchase choices.

It varies from typical stock charts, such as the Candlestick chart, in that it is essentially time independent.

This feature assists in the creation of a chart that eliminates random noise.

The Kagi chart is one of the numerous charts that investors use to make better judgments about companies because of its efficiency in displaying a clear path of price changes.

The most significant advantage of this chart is that it is not time dependent, and the shift in direction occurs only when a certain quantity is achieved.

The Kagi chart was created in Japan in the 1870s, when the Japanese stock market first began trading.

It was used to follow the price movement of rice and to determine the overall levels of supply and demand for various assets.

Construction

Kagi charts resemble swing charts in appearance but lack a time axis.

A Kagi chart is formed by connecting a succession of vertical lines with short horizontal lines.

The thickness and direction of the lines are determined by the underlying stock or asset’s price, as seen below:

  • When the price approaches the high or low of the preceding vertical line, the line’s thickness changes.
  • The line’s orientation changes when the price hits a certain reversal amount, which is generally set at 4%.

When the direction changes, a brief horizontal line is drawn between the opposing lines.

Alternatively, thin and thick lines can be replaced by lines of different colours, as seen in the image with the green/red example.

Transaction signals are generated by changes in line thickness.

When the Kagi line changes from thin to thick, buy signals are created, and sell signals are generated when the line changes from thick to thin.

How to Plot a Kagi Chart

  1. Determine the beginning position. The initial closing price is commonly regarded as the beginning point. From then on, you compare the closing price of each day to the initial price.
  2. Draw a thin vertical line from the starting price to the closing price of each day as long as the trend does not reverse.
  3. If the closing price of a day changes in the opposite direction of the trend by more than the reversal amount, draw a short horizontal line and a new vertical line starting from the horizontal line and ending at the new closing price.
  4. If the price on a given day exceeds or equals the prior high, switch to a thick line and continue the vertical line. Change to a thin line if the price on that day is less than or equal to the prior low.