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Used to display the general levels of supply and demand of a particular asset by visualising the price actions through a series of line patterns. Kagi Charts are time-independent and help filter out the noise that can occur on other financial charts (like on a Candlestick Chart), so that important price movements are displayed more clearly. Recognising the patterns that occur in Kagi Charts is key to understanding them.
While Kagi Charts do display dates or time on their x-axis, these are in-fact markers for the key price action dates and are not part of a time-scale. The y-axis on the right-hand side is used as the value scale.
The line in a Kagi Chart initially moves vertically in the same direction of the price movement and will continue to extend, so long as the price, regardless of how small, maintains the same direction. Once the price hits a pre-determined "reversal" amount, the line makes a u-turn and goes in the opposite direction. So, each of the little horizontal lines on the chart indicate where a price reversal has taken place. When a horizontal line joins a rising line with a plunging line it's known as a "shoulder", while a horizontal line connecting a plunging line with a rising line is known as a "waist".
The varying thickness (or colour) of the line is dependent on the price behaviour. When the price goes higher than a previous "shoulder" reversal, the line becomes thicker (and/or green) and is known as a "Yang line". This can be interpreted as an increase in demand over supply for the asset and as a bullish upward trend. Alternatively, when the price breaks below a previous "waist" reversal, the line becomes thinner (and/or red) and is known as a "Yin line". This signifies an increase in supply over demand for the asset and as a bearish downward price trend.
Traders use the shift from thin (Yin) to thick (Yang) lines (and vice versa) as signals to buy or sell an asset. A Yin to Yang shift indicates to buy, while a Yang to Yin shift indicates to sell.