Sentiment Indicators - Renko, Price Break, Kagi, Point and Figure: What They Are and How to Use Them to Trade

Chapter 9. Kagi Charts: Waiting for the Turn of Sentiment

The aim of this chapter is to provide an understanding of Kagi charting, its basic concepts, and its key applications in trading.

Kagi Chart Basics

Kagi means "key" in Japanese, and the idea behind using Kagi charts is to use them as a key to detecting turns in sentiment more effectively. The best way for a trader to use Kagi charts, like Renko charts, is after the trader has decided upon the direction of the next trade. Once the trader makes a directional decision, the challenge is to find the optimal entry point. Of course, there is controversy as to what is optimal. Generally, there is no best place to enter a trade, but there are many combinations of conditions that result in an optimal setup. Our focus here is on how the trader can use Kagi as an entry trigger. A major reason to use Kagi for entering a trade is that Kagi pinpoints when the sentiment has turned. This is what Kagi charts are all about. Kagi charts are very effective with regard to displaying sentiment changes.

Let's start by defining the main characteristics of the Kagi chart that provide tools for analysis.

Yin and Yang: These are the Kagi chart lines. They alternate between being thin and thick. Yin is the name associated with the sentiment being bearish and favoring selling. When Yang lines emerge, buying sentiment has taken over. Yang lines are thicker than Yin lines. In some charts the differences between the lines are visualized as colors: the Yang lines ...