Kagi Chart

As Matchbox 20 reminded us back in 2002, “some things in this world, man, they don’t make sense.” We’re sometimes reminded of that song when we look at candlestick charts to try and predict stock trends: they’re so chaotic and confusing, with all those scraggly lines and weird blocks everywhere. But happily, if all we want to do is look at trends, and we don’t care about the time intervals involved in those trends, there is a much prettier and cleaner-looking alternative.

It’s called a Kagi chart. It uses a system of vertical and horizontal lines of varying thicknesses to show us how an asset is trending, but it doesn’t bother showing us time intervals or itty bitty directional changes that don’t affect the overall trend itself.

We start from a security’s first closing price. As the price goes up, so does the vertical line. These upward vertical lines are called “yang lines,” and if our chart is in color, they’ll be green. If the price then goes down by a significant amount (like 4%), a short horizontal line is drawn from the top of our vertical line to the right, and then a vertical downward line (also called a “yin line” and shown in red) is created. As the price continues to drop, our line continues to go down. If the price then turns around and starts climbing up again (by at least that same predetermined percentage), a horizontal line is created from the bottom of our yin line, and a new yang line is created going up.

Now for that line thickness part. If a yang line passes the previous yang line’s high, it becomes thicker. And if a yin line goes below the previous yin line’s low, it becomes thicker. Visually, this allows us to quickly see how an asset is trending: if there’s a big ol’ thick green line happening, we know that the asset in question is experiencing an upward swing that is bigger than its last one, and vice versa. But since we’ve taken time intervals and insignificant price changes out of the mix, we’ve made it a lot easier on our poor, aging eyes to see what’s going on.