Renko And Kagi Charts: Alternative Views Of Forex Prices – Traders can use different types of charts in their trading. Some of them are common, like candlestick charts. But some are more exotic and only rarely used. But this does not mean that such charts are not useful for traders. One such less common type of chart that is usually only used by professional traders is the Kagi chart.
A Kagi chart is a type of chart that shows the price movement of an asset. It consists of vertical and horizontal lines connected at an angle of 90 degrees. They can be thick or thin. Sometimes the trader may choose to color the thick lines green and the thin lines red. The Y axis shows the price value. A Kagi chart does not show a continuous timeline. Instead, the X-axis shows the key moments when the price changes.
Renko And Kagi Charts: Alternative Views Of Forex Prices
The Kagi chart was created in Japan in the 1870s. Initially, it was used by rice traders to determine supply and demand. The word “kagi” is used in Japanese for an L-shaped key. In fact, a Kagi chart is sometimes called a key chart. The name reflects the L-shaped lines of the diagram.
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To create a Kagi chart, first a horizontal line is drawn at the nearest price level. Next, a vertical line is drawn between the horizontal line and the close of the next period. What happens next depends on what the price does:
If the price is above the previous high (shoulder), then the line will be thick/green. If the price moves below the previous low (belt), then the line will be thin/red.
The most common strategy for a Kagi chart is to buy when the line becomes thick/green and sell when the line becomes thin/red. The downside of the strategy is that it can create a lot of false positives when trading poorly.
There are many ways to filter noise from markets. One of them is to plot a trend line and buy when the belt is formed above it or sell when the shoulder is formed below it. Another is to wait for the price to break below the previous three bars or rise above the previous three shoulders to confirm a new trend.
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The main advantage of the Kagi chart is that it is time dependent. This allows it to filter out market noise and make it easier to identify trends.
The disadvantage of the Kagi chart is the need to find the correct inverse value. If the trader sets it too low, the chart will become too cluttered and create too much noise, making it harder to identify trends and basically eliminating the benefits of the Kagi chart. If the trader sets the value too high, the chart will generate too few trading signals, resulting in missed potentially profitable trading opportunities. The latter means that the Kagi chart is not useful for less actively traded assets.
The main difference between a Kagi chart and a candlestick chart and other common charts is that a Kagi chart is independent of time. While the candlestick chart creates a line for each time period (hourly, daily, weekly, etc.), the Kagi chart creates a U-turn only when the price reverses its movement. This makes the Kagi chart less prone to market noise, makes it easier to use in spotting trends, and allows it to show more data in a single time frame.
Being a time-independent chart, the Kagi chart is somewhat similar to Number and Number (P&F) as well as Renko charts. However, the Kagi chart is considered a better tool for identifying trends because of the way these charts are constructed. To better understand why we need to look at what charts are and how they are made.
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A P&F diagram consists of Xs and Os. X is formed when the price rises above the previous level by a specified amount, while Y is formed when the price falls by a predetermined amount more than the previous low. Although it makes the chart easier to understand and design, this approach means that it usually takes a relatively long time for a new X or Y to appear. This does not make it useful for fast-moving domestic markets such as Forex.
Let’s look at the EUR/USD chart for example. At the end of May 2020, the rally started, and those traders who entered long positions early could profit greatly from it. However, if we look at the daily P&F chart of the currency pair, it will take too long to identify the trend and traders may have lost a large part of the profit waiting for the confirmation.
Using a smaller table alleviates the problem a bit. Here is the same chart on the 4 hour chart.
With all the Xs and Os, the chart still looks very visually crowded, making it harder to see the less obvious trends.
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But what about Renko charts? A Renko chart is made up of boxes (called bricks). A new brick appears only when the price moves at least to the set minimum. In addition, a new brick can appear only if the closing price rises above the previous brick, or at least falls below a certain amount. As new bricks appear more often than Xs and Ys on a P&F chart, and each new brick is placed next to the previous one, it becomes much easier to spot a trend on a Renko chart than on a P&F chart. Let’s look at the Renko chart of EUR/USD.
However, when a new brick is created every time a relevant price action occurs, it reduces the advantage of filtering out market noise and makes the Renko chart closer to a candlestick chart than other time-independent charts. Additionally, due to the nature of how a Renko chart is constructed, it cannot react quickly to a change in trend. Since two bricks cannot be placed next to each other, the price must move at least two bricks before it is allowed to change direction.
Not only is it very easy to see the uptrend, but traders could also see when the price broke above the strong resistance level tested three times before and the chart sent a bullish signal by turning the Yin line into a Yang. line
The method of constructing a Kagi chart does not differ between different assets. This means that there is nothing stopping traders from using Kagi charts to trade Forex pairs.
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It is important to remember that some currency pairs are more actively traded than others. This means that it can be useful to use different inverse values for different currency pairs. Some professional traders advise to use the inverse value of ATR to calculate changes in volatility. Others advise against this because such an approach takes the precise control of the reversal value out of the trader’s hands in exchange for changing the chart’s appearance in the past.
Unfortunately, Kagi being a less popular chart means that not all platforms support it. Here is a list of popular platforms that allow the use of Kagi charts.
The MetaTrader platform does not support the Kagi chart out of the box. But it can be downloaded for free from the official codebase as a separate indicator.
Although the indicators allow you to view Kagi charts on popular MetaTrader platforms, the charts are not great, and MetaTrader is definitely not the best way to use Kagi charts. It is better to use platforms that have a Kagi chart, such as the platforms listed below.
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TradingView is probably the easiest way to try Kagi charts because it has this type of chart and requires no download. When choosing a chart type, you can only select Kagi. Unfortunately, the Kagi chart is only available for free on daily or longer timeframes. Same day slots are available to paying customers only.
If you want to share your thoughts, observations, conclusions or just ask questions about using the Kagi chart in Forex, feel free to join the discussion in our forum. Whether you’re a fundamental or technical trader, you’ll probably agree. that charting software is a useful addition to the trading toolbox. Traditional candlestick charts dominate the industry, but did you know there are other chart types to use? In this article, we’ll look at other common types of charts, what they do, and how you can use them to your advantage.
In order not to miss this article, we will focus on the types of charts available in TradingView. TradingView is the most popular chart analysis software in crypto and many other markets. The tool offers a wide range of chart types:
With so many charts to choose from, most traders never venture beyond one of the most popular chart types: candlesticks – and for good reason! This powerful tool allows for extensive analysis, price action analysis and chart pattern studies.
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The first thing is that the most common type of chart – candlestick charts – has been around for hundreds of years. This
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