Nikkei 225 Kagi Chart with MACD Applied (Charts: Tradingview)

Kagi What is it? • Created in Japan, • Been around since 1870’s. • Used to give a much more transparent picture of where the price of an individual asset was headed independent of time. • Ignores time and focus solely on price changes that meet a minimum requirement. • Great for taking the ‘noise’ out of the charts; another great ‘psychological’ helping chart! • 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. 1 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): 2 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): 3 Basics: • It is the study of pure price movement i.e. it doesn’t take into consideration ‘time’ when constructing its charts. • Uses simple lines known as ‘Yin’ and ‘Yang’ to measure price. • The lines change direction once the price moves a set amount. • Kagi charting is all about the price reversal. • Normally: Black (thicker) lines indicate bullish periods (Yang Line), Red (thin) lines signify bearish periods (Yin Line) • In my examples: Going Black to Red = Sell, Going Red to Black = Buy 4 Construction: • Step 1 is to calculate the reversal amount. You can do this one of three ways: ➢Fixed number of points ➢A set percentage move ➢Average True Range (ATR) (As per Renko) • Calculation 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. • Note: We will be using an ATR approach on this course. 5 The benefit to using ATR? ATR adds in the current volatility of the asset and reflects market action in its calculation currently, rather than just taking a set amount or percentage and applying that uniformly. Example: Nikkei 225 Kagi Chart with a 350 point reversal (Charts: TradingView) 6 Uses: • Trading by itself • Filtering out trading noise • Useful for spotting support and resistance and trends Again, using the Nikkei 225 (Charts: TradingView), pattern analysis just on its own can seriously aid your trading decision making: 7 Use Of Indicators On Kagi Charts: Due to the advancement of technology and charting software you can now seriously enhance your Kagi analysis even further and create some brilliant trading strategies. • Can use indicators in conjunction with Kagi charts to improve results. • You don't have to stop at just pattern analysis though. • Advancements in charting software mean you can also add indicators to your analysis which, with a bit of planning, could create some fabulous trading strategies. • Why not consider: RSI, MACD, Stochastics, Moving Averages etc to determine support, resistance, entry and exit points. 8 Stops: Can you use stops on Kagi charts? Yes: Basic rules: • Use levels of support and resistance • Use indicators e.g. moving averages, bands etc. • You can trail your stops a number of bricks or behind significant price levels. • You can use the Historical Volatility calculator to set stop levels (you’ll learn this on the Trade Management module.) Lets look at an example of adding indicators. Our Nikkei 225 price chart now has the further addition of a 50 'line' moving average and a MACD indicator: 9 Nikkei 225 Kagi chart with MACD applied (Charts: TradingView): NOW: Move on to Line Break Charts 10.

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