If you’re invested in the stock market and looking to make the most of your trades, you’re likely already familiar with one of the most popular stock market charts, the candlestick chart. The candlestick chart is a Japanese-derived financial chart that uses candlesticks to show open and close prices for stocks. These charts also show the top and low prices for the day for any given stock. When traders use candlestick charts over time, they can map out trends and patterns. A skilled trader can also evaluate the data on these charts to discern the strength of trends. However, candlestick charts are complex stock charts that require an experienced, skilled trader to understand. So, what’s the alternative? That’s where a Kagi chart comes into play.
A Kagi chart is another Japanese-derived chart for tracking price movements for stocks. Kagi charts inform traders of when they should buy or sell a particular stock or share. In this article, you’ll learn the answer to the question, “What is a Kagi chart?” and find out how to use them.
What are Kagi charts?
The Kagi chart was created in Japan during the late 1870s. The Japanese populace used these financial charts to track the price of rice so traders could buy rice at the best price. Steve Nison brought this Japanese financial chart to the United States as a way for traders to read and understand the trading matrix. Furthermore, Steve Nison was also the person that introduced the candlestick chart to the United States. However, he brought the Kagi chart to the western world due to the numerous benefits of comprehending and evaluating stock price movements.
How do Kagi charts work?
Before you can start using a Kagi chart to decipher your trading strategy, you need to understand a few key elements. First, there are two axes on a Kagi chart, the X and Y axes. The X-axis is horizontal and has dates that act as markers for price actions. The Y-axis is vertical and serves as the value scale. In most cases, Kagi charts have two line types: a thick green line and a thin red line. This thick green line is known as the yang line. The yang line represents the increase in demand oversupply or the stock and an upward trend called a bullish trend. The thin red line is known as the yin line. The yin line represents an increase in supply over demand and shows a downward price trend, also called a bearish trend.
If a horizontal line joins a plunging line with a rising line, it’s called a waist. When a horizontal line joins a rising line with a plunging line, it’s called a shoulder. The line will not change direction until the share price exceeds a predetermined reversal amount. Typically, this amount is four percent, depending on the trends the trader wants to see. A trader can set this predetermined amount to a dollar value or an average true rating (ATR) instead of only a percentage. The shoulders and waists on a Kagi chart change color when surpassed. The color changes at the point where the shoulder waist is passed. However, the color won’t change for every reversal. It only changes when the price exceeds the waist or shoulder in question.
Due to the way a Kagi chart works with these clear indicators, a trader should be able to look at Kagi chart data and determine if they should buy, sell, or wait much faster than other charts.
Make the most of your trades with a Kagi chart.
Kagi charts are popular due to their simplicity. The main factor to look at is the thickness of the lines and the direction they’re going. Since the lines will not change until reaching the predetermined reversal amount, it eliminates the unimportant information traders must sift through with other charts. To use a Kagi chart, most people buy when the lines change from thin to thick and sell when they change from thick to thin.