The Kagi chart is of a linear type. It is formed by the lines of different width - the thick and thin ones. Kagi charts are believed to have been used in Japan as far back as in the 70s of the XIXth century. The chart plotting rules are very similar to those of the Point and Figure charts: the next step (the horizontal line after the vertical line) is drawn after a significant price reversal has been recorded (the price chart descends from the high or uprises from the low to such extent, that it penetrates the base values net). Below there is a day price chart and the corresponding Kagi chart (the increment is 5). From this example it is seen that the dips, which appeared on the 9th and the 16th, have caused insignificant price reversals, which are not depicted on the Kagi chart.
If the line penetrates a previous high or low, it becomes thick or thin correspondingly.
Image 1. Kagi Chart.
These charts represent the sequences of rising highs and lows form a bullish trend, while the series of falling highs and lows indicates a bearish trend. A buy signal appears when a thin line changes into a thick one and a sell signal is generated when the thick line turns into a thin one.
Kagi charts analysis is similar to the classical chart analysis: the support and resistance levels are distinguished, trend lines are plotted, and market reversals are defined.
The typical reversal patterns on Kagi charts – Double Windows and Three Buddha – are shown below.
Image 2. Double Window at the high and at the low.
Image 3. Three Buddha and Reversal Three Buddha patterns.