Kagi Charts

Definition

Kagi Charts are a specific type of chart composed of vertical lines (green for up and red for down) and small horizontal lines, that connect them. Similar to Renko Charts, Kagi Charts do not factor in time. Time intervals are completely cast aside as Kagi Charts only take price action into consideration. The word Kagi is derived from the Japanese art of woodblock printing. A Kagi or Key is an L-Shaped guide used to properly align paper for printing. Due to this, Kagi Charts are even sometimes referred to as Key Charts. The premise of Kagi Charts is fairly simple. Essentially, from the starting point (usually the first closing price), lines are drawn solely based on price action. The Up Lines (also called the yang lines) are formed during uptrends, while Down Lines (yin lines) are formed during downtrends.

As long as prices continue to move in the current direction, the current up line or current down line will continue. Once price reverses enough (the necessary reversal amount is set by the trader), a horizontal line is drawn and then a line is drawn in the opposite direction of the previous line, stopping at the new closing price.

Line types

There are five different types of lines that can be drawn within a Kagi Chart.

1. Up Lines (Yang Lines) — Form during an uptrend.
2. Down Lines (Yin Lines) — Form during a downtrend.
3. Projected Up Lines — During an intraday timeframe, a potential up line that would form based on current price (before actual closing price is set).
4. Projected Down Lines — During an intraday timeframe, a potential down line that would form based on current price (before actual closing price is set).
5. Horizontal Lines — Lines drawn when a line changes direction. When an up line changes to a down line, the horizontal line is considered a shoulder. When a down line changes to an up line, the horizontal line is called a waist.

Line calculation methods

There are three different methods for calculating lines:

1. Average True Range (ATR) — Uses the values generated by the Average True Range (ATR) indicator. The ATR is used to filter out the normal noise or volatility of a financial instrument. The ATR method automatically determines a good line size. It calculates what the ATR value would be in a regular candlestick chart and then makes this value the line size.
2. Traditional — Uses a user-pre-defined absolute value for line size. New lines are only created when price movement is at least as large as the pre-determined line size. The upside to this method is that it is very straightforward and it is easy to anticipate when and where new lines will form. The downside is that selecting the correct line size for a specific instrument will take some experimentation.
3. Percentage (LTP) —The line size is based on the percentage defined by the user. This particular percentage is applied to the most recent closing price to calculate the line size, and then rounded to the nearest minimum tick size and applied consistently across all bars. It is crucial to acknowledge that this approach to calculation is subject to repainting. For a more comprehensive understanding of this effect, further information is available here.

Uses of Kagi Charts

Kagi Charts are a popular charting choice because of their ease of interpretation. Because they do not take time intervals into consideration at all, they have a way of factoring out the associated noise. When price movement is the only variable that matters, the creation of new lines gains importance. Price movements typically need to be substantial to register a line change and therefore should always be noted. Natural, small price variations that occur naturally over time can therefore be disregarded. Some common, everyday applications for Kagi Charts are basic line reversal trading signals, support and resistance discovery and a sequence-based reversal pattern.

Up Line/Down Line Reversals — Steve Nison, who brought popularity to Kagi Charts, offered the most basic interpretation of the charts. It is simple, buy in yang, sell in yin. Basically, buy in a reverse to an up line and sell in a reverse to a down line.

Support and Resistance —  Oftentimes, Kagi Charts reveal areas of support and resistance.

Nison himself proposed a trading signal, which entails waiting for a sequence of nine (mostly) consecutive shoulders or waists. Traders should then look for a reversal opportunity after the ninth shoulder or waist is drawn.

Kagi Chart specific options in TradingView

Up Bars — change the color and outline of Up Bars.

Down Bars — change the color and outline of Down Bars.

Projected Up Bars — change the color and outline of Projected Up Bars.

Projected Down Bars — change the color and outline of Projected Down Bars.

Box Size Assignment Method — Can choose between ATR line calculation method, Traditional line calculation method and Percentage (LTP) line calculation method.

ATR Length — If ATR is the selected line calculation method, this value will set the ATR look-back period. 14 is the default.

Reversal Amount — If Traditional is the selected line calculation method, this value sets the size of a move needed to draw a new line in a different direction.

Percentage — If Percentage (LTP) is the selected line calculation method, this value will specify the percent of the last trading price to be used as the line size. 1% is the default.