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A Kagi chart is one of the ways how we can show quotes of a financial instrument, for example, any currency, metal or security. This Forex chart shows change of price as a vertical line of various thickness linked with horizontal lines. A Kagi chart line follows the price in one direction until the tendency changes. After the tendency is broken, the price moves to the right and a new Kargi line is built in the opposite direction, the second line is connected with the previous, horizontal bridge in the reversal point.
How to build Kagi Charts
While working with Kargi charts, we will see that changes are entered each time when the price leaves the limits of the previous price or accomplishes a certain distance to the opposite direction. Before you start building A Kagi chart, take into account the parameters listed below:
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A price target – the price which is the basis of the chart. Usually we use closing price of ouк time-frame (for instance, a closing hour). Sometimes traders take high and low price. In this case high is better to use for the upward movement and low is taken for the downward movement.
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A Reversal parameter, threshold value – the distance the price must pass in the opposite direction from the previous fixed value to make the direction of Kargi chart line change (a new vertical line started to form) More often it is set in points (if currency price is higher, it is recommended to take value) or in % from current price (for example, 5%)
If the price moves in the direction of the previous vertical Kagi line, then the line will be prolonged. If the price moves the opposite direction, in this case nothing is rendered until it passes threshold distance.
Apart from that, Kagi line can change its thickness. When a thin Kagi line exceeds highest point of the previous value, the line gets thicker. If a thick Kagi line moves downward and gets below the previous bottom point, the line gets thinner.
Interpretation of chart in the terms of Yin and Yang:
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Yin – thin line
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Yang – thick line
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Waist – connection of decline line with growth
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Shoulder – connection of growth line with decline
In case Yin exceeds previous shoulder, exceed of Yang takes place. If Yang is lower than the previous waist, conversion to Yin takes place.
Any vertical line can contain uncertain duration. If the price moved within a certain range, did not drop down and did not grow for threshold value, then the chart remains unchanged.
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