Technical Analysis (Part 22) - Japanese Charts: Kagi

Monday, Sep 11 2017 by
7
Technical Analysis Part 22  Japanese Charts Kagi

Previously we looked at the Line Break chart which was great for spotting possible reversals. In this article, we look at an approach that can filter out some of the psychological issues you may be having with your analysis. If you’re struggling with the ‘noise’ of the charts and information overload in your trading, then Kagi charting could be just the thing for you to add to your trading arsenal. 

Kagi charts were developed in Japan in the 1870’s when their stock market started trading and were used to track the price movement of rice. They were used to give a much more transparent picture of where the price of an individual asset was headed independent of time. Due to the global world we live in and the advancement in charting software, techniques such as Kagi charting are now available to all of us.

It’s all about the yin and yang: What are Kagi charts?

Kagi charts, like their western equivalent the ‘point and figure chart’, do away with time, leaving the user to focus only on the price action. Instead of using ‘X’s and O’s like point and figure charts, the Kagi chart simply uses lines. These lines are known as the Yin and Yang lines. The other fundamental concept of these charts, is that of the reversal in price. The lines change direction once the price moves a set amount.

Below you can see a typical example based on the S&P500 stock index (Charts: TradingView). In this example the thicker black line signifies up bullish periods (Yang line) and the thinner red line signifies bearish periods (Yin Line):

59b68598715f0K2.png

Also take a look at the same period on the Kagi S&P 500 chart versus the traditional candlestick chart S&P 500 chart. See how much less noise there is on the Kagi chart (Charts: TradingView):

59b685ad41e00K3.png

Constructing your Kagi chart

Step one is to calculate your reversal amount. This can be done one of three ways:

  1. Fixed number of points

  2. A set percentage move

  3. Average True Range (ATR)

This calculation is not restricted to just the ‘close’, but could also be based on a range such as the high-low. The reversal amount is the minimum price change required for the Kagi line to reverse its direction. If a reversal were to occur,…

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Disclaimer:  

Commentaries, information, courses, content on this site or provided on any other form of social media by Stephen Hoad or THE STOP HUNTER Ltd and any other materials or services provided by Stephen Hoad or THE STOP HUNTER Ltd ARE NOT and DO NOT amount to financial or investment or trading advice upon which reliance should be placed and DO NOT fall under any matter regulated by the Financial Conduct Authority (FCA).

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2 Comments on this Article show/hide all

danpollard 11th Sep 1 of 2

Does anyone still read these?!

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dmjram 12th Sep 2 of 2

In reply to danpollard, post #1

Counter at the top - 375 and rising.
Personally find them interesting - an alternative view of how to look at the market/individual stocks compared to the majority of posts on Stockopedia which are concerned with fundamental analysis.

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About Stephen Hoad

Stephen Hoad

Stephen Hoad is the founder of The Stop Hunter and the resident Technical Strategist at Stockopedia.com. He has worked in the City of London for nearly twenty years at some of the top Investment Banks and Trading Houses. His career that has taken him from global risk management (front office, market, quantitative), to successful commodities options trader, to own account proprietary trader. His professional experience in the world of trading and risk management is vast and he has extensive knowledge of financial markets, especially in the fields of Commodities, FX and Equities. He has a strong quantitative background and is a qualified Technical Analyst. He also holds an MSc in Financial Markets & Derivatives and a BA (Hons) in Business & Economics. His career has taken him worldwide and he has lectured in London, the Far East and at Princeton, USA. He is an expert in technical analysis, systematic/automated trading, derivatives products, financial and quantitative theory, risk management and regulatory practices. He also has experience of dealing and trading with China. He is currently a member of GARP, PRMIA and the STA. Now trading from his offices in Canterbury, Kent, he undertakes consultancy work in the City and is a part-time University lecture teaching at Queen Mary, Kings College, LSE. Author of the book: #Trading Thought: Mind Medicine for Traders and Investors more »

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