In our previous article, we discussed the Heikin Ashi chart pattern. Today we will introduce you to Kagi Chart Trading Strategy. Like Heikin Ashi and Candlestick pattern, it was also developed in Japan. There is a slight difference between tradition chart pattern and Kagi chart pattern. Unlike traditional chart like the candlestick, bar, line, this chart only deals with price, time is not considered here.
First of all, let’s start with the structure of Kagi Chart. It looks like a series of a vertical line. If you are dealing with an excessive noise problem, Kagi chart is the solution here. It eliminates excess noise by not reacting to smaller price movement. Hence, the chart lessens the ambiguity in making the trading analysis.
Kagi Chart Trading Strategy
The above image is given to clarify the concept of Kagi chart structure. The varying thickness or colour of the line is fully dependent on the price action and market behaviour. The thick or green Kagi line is called a Yang line while the thin or red line refers to Yin line. When price moves to bullish trend the line becomes green or thick but during a bearish trend, the red or thin line appears. A yin to yang shift indicates to buy while yang to yin indicates sell signal. The line keeps extending as long as the price moves in the same direction and when the reversal happens the line makes a u-turn and goes in the opposite direction. In the thick or gree line, the connecting plugging line refers to as “shoulder” and in the red or thin line the connecting plugging line is called “waist”. Reversal trend starts always with a breakout of either shoulder or waist.
Though the chart pattern is quite famous for giving good signal during trading, sometimes it also provides the false signal. Hence, in order to avoid such kind of false signal, many of the investors apply indicators. Among the indicators, RSI and MACD indicator is quite well-known. If the RSI line is above 50, it provides a buy signal while below 50 gives the sell signal. Now, come to the MACD indicator, in MACD there are two lines, MACD line, and a signal line. When the MACD line is above the signal line that indicates buy and signal line above MACD indicates sell signal. By using the two indicators with Kagi chart one can easily avoid the false signal.
After providing some general characteristics of the Kagi chart we will move on to the example.
- You can set reversal amount according to your wish. If you are an intraday trader it is advisable to set the reversal percentage at 1 and if you are a long-term investor, set the percentage at 4.
- Greenline or thick line means the bullish trend has appeared while red or thin line means a bearish trend.
- It will provide proper price and market activity without creating noise.
- By applying indicators Kagi works perfectly to show the current and future price fluctuation, buyers-sellers relation, the strength of the market speed.
Let’s move to an example. I am giving RELIANCE INDUSTRIES share price weekly Kagi chart with RSI and MACD.
As you can see in the above chart that the Redline shows bearish trend and green shows a bullish trend. Let’s see what the indicators say. According to RSI, it is above 50 that means it is a buy signal while the MACD line is slightly above the signal line, indicates buy signal too. Therefore, there is coordination which provides a message that the time is right to buy shares of the company.
So, Kagi Chart Trading Strategy is quite important for investors. It provides a noise-free clear signal that helps to read the price movements. Kagi Chart Trading Strategy is nothing but an important chart pattern in technical analysis.
Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.