| KAGI charts, said to have been started around the time
the Japanese stock market began trading in the 1870s. Kagi charts, as well as
Candlesticks, were introduced to the western world by Steve Nison. Kagi charts
display a series of vertical lines where the thickness and direction of the lines
are dependent on the price action. If the closing prices continue to move in the direction
of the prior vertical Kagi line, that line is extended. However, if the closing price
reverses by a pre-determined "reversal" value, then a new Kagi line is drawn in
the next column in the opposite direction. An interesting aspect of the Kagi chart is that
when closing prices penetrate the prior column's high or low, the thickness of the Kagi
line changes. To draw Kagi lines, compare the close to the ending point of the last Kagi line. If the price continues in the same direction as the prior line, the line is extended in the same direction, no matter how small the move. However, if the closing price moves in the opposite direction by the reversal amount or more (this could take a number of sessions), then a short horizontal line is drawn to the next column and a vertical line is continued to the new closing price. If the closing price moves in the opposite direction of the current column by less than the reversal amount then no lines are drawn. In addition, if a thin Kagi line exceeds the prior high point (on the Kagi chart), the line becomes thick. Likewise, if a thick Kagi line breaks a prior low point, the line becomes thin. As a general rule of thumb, eight to 10 higher highs on a Kagi chart often coincides with an overextended market (implying that a bearish reversal may be at hand). |