Technical Analysis (Part 22) – Japanese Charts : Kagi

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Previously we looked at the Line Break chart which was great for spotting possible reversals. In this article, we look at an approach that can filter out some of the psychological issues you may be having with your analysis. If you’re struggling with the ‘noise’ of the charts and information overload in your trading, then Kagi charting could be just the thing for you to add to your trading arsenal. Kagi charts were developed in Japan in the 1870’s when their stock market started trading and were used to track the price movement of rice. They were used to give a much more transparent picture of where the price of an individual asset was headed independent of time. Due to the global world we live in and the advancement in charting software, techniques such as Kagi charting are now available to all of us. [Read more…]

Technical Analysis (Part 9): Direct Price Analysis (DPA) – Patterns on Price

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Last week in Part 8, we looked at Trends, Support & Resistance. We take those ideas one step on this week, into the concept of patterns on price. Many think pattern analysis is created from a mystical land and disregard it without a second look! There can be strange names associated to the various patterns and this probably doesn’t help their legitimacy, but if you stop and think what the price is doing within these patterns, you can see the economics of supply and demand at work and this is why these patterns make sense and can be so effective. [Read more…]

Technical Analysis (Part 5): Point and Figure charts

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Last week in Part 4, we looked at candlestick charts. This week, we look at one of the oldest charting methods popularised in the West: Point and Figure charts. To some, Point and Figure charts look like a glorified game of noughts and crosses! To others they simply make no sense or serve no purpose. Unfortunately, the interest in Point and Figure charts is on the wane, which is a shame because  if you dug a little deeper, they can be a highly effective charting approach that you could use for your trading and investing. They can offer flexibility and a different perspective on price action. [Read more…]

Technical Analysis (Part 4): Candlestick Charts

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Last week in Part 3, we looked at line charts and bar charts. This week, we take charting a step further by looking at a concept introduced by the Japanese: Candlestick charts.

A Brief History

It is debatable who developed the candlestick concept. Many attribute Munehisa Homma, a Japanese rice trader, as the inventor of the candlestick charting approach. Others say it was more probable that candlestick charts arose from general trading activity and practices in the early part of the Meiji period in Japan (in the late 1800’s) and the need to disseminate information. What can’t be argued though, is that during this period, it was discovered that there was a relationship between price, traders’ emotions and the supply and demand of rice. Adding in emotions to the equation added a whole new dimension to the analysis of the rice market. Traders, like Homma, appreciated that raw supply and demand factors weren’t the only driving force behind the price of an asset and that human interaction had a big influence on the shape of the rice market at any given time.

Candlestick charting methods only really hit the Western world in the mid to late 20th century. As technology and computers also developed, it allowed this style of charting to spread more easily and become more widely understood. Candlestick charting is now globally used as a highly effective approach to analysing financial price data, for both the trader and investor in the short and longer term. [Read more…]

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