Developed by Japanese rice traders in the 1870s, Kagi charts plot price information as one continuous line. This unique display of price action can help filter out market noise and choppiness, helping speculators track and identify potential trade opportunities.
The word Kagi is Japanese for key and Kagi charts are sometimes referred to as Key charts. Designed specifically for technical analysis, Kagi charts are known to help filter out market noise to better make sense of trading activity.
Kagi charts provide an alternative way of analyzing price action. Unlike traditional time-based candles, Kagi charts are based solely on price movement similar to Renko bars.
How Kagi Chart Work
Intended to help analysts determine market direction, Kagi charts indicate trend with line thickness and color:
- Thin red lines, also called yin lines, indicate a dominant trend to the downside.
- Thick green lines, also called yang lines, indicate a dominant trend to the upside.
Kagi charts are known to help smooth out market choppiness to help track market trends. In the Micro E-mini S&P 500 futures chart below, 2 short-term trends can be identified and have been highlighted with the Arrow Line drawing tool.
Use Kagi Charts to Find Channels
By reducing the amount of chop seen on a chart, Kagi charts are also useful in defining trend channels.
In the chart below, created free with NinjaTrader, the Kagi chart style helps identify the boundaries of a downtrend, highlighted with the Polygon drawing tool. Rangebound markets can provide ample trading opportunities in both directions.
As with other chart styles & analysis tools, the way Kagi charts are utilized will vary for each trader.
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Source: https://ninjatrader.com/blog/use-kagi-charts-to-filter-market-noise/
