D024 KagiClarity Flow — Kagi Reversal + Regression Clarity Trading System

Why Kagi + Clarity?

Most reversal-line systems (ZigZag, swing-high/low, fixed-pip reversals) flip constantly in range-bound markets, generating a stream of low-quality signals. KagiClarity Flow borrows the century-old Kagi charting technique: the line only changes direction once price reverses against the current swing extreme by a real, ATR-scaled amount — not a fixed number of pips, so the threshold automatically widens in volatile conditions and tightens in quiet ones.

Reversal Amount = ReversalATRMult(0.5) × ATR(14)

But a Kagi flip alone doesn't tell you whether the move that follows is trustworthy. So every flip is passed through a second filter: a least-squares linear regression of the last 20 closes. Its R-squared value measures how well those closes fit a straight line — high R² means a clean, directional move; low R² means noisy chop. Only flips with R² ≥ 0.35 and a regression slope that agrees with the flip direction are allowed to trade.

R² = 1 − (SS_residual / SS_total), over the last 20 H1 closes

Entry Rules

LONG Setup

Kagi line flips UP: price reverses ≥ 0.5 × ATR(14) off the swing low
R²(20) ≥ 0.35 on the last 20 closes
Regression slope over those 20 closes is positive
Enter long at the close of the signal bar

SHORT Setup

Kagi line flips DOWN: price reverses ≥ 0.5 × ATR(14) off the swing high
R²(20) ≥ 0.35 on the last 20 closes
Regression slope over those 20 closes is negative
Enter short at the close of the signal bar

Exit & Risk Management

    Fixed, volatility-adaptive risk plan
    Stop Loss: entry ∓ 1.6 × ATR(14)
Take Profit: entry ± 2.8 × ATR(14) — reward:risk ≈ 1.75 : 1
Position Sizing: risk exactly 1% of account balance per trade, lot size derived from stop distance
Exposure: one position at a time, no averaging, no martingale
Daily Cap: maximum 10 new entries per day, resets automatically at the next session

  

Execution Flow

TRACKRebuild and update the Kagi reversal-line state on every new closed H1 bar.

WAITDo nothing while the line holds its current direction — no flip, no interest.

CONFIRMOn a flip bar, run the 20-bar linear regression and check R² ≥ 0.35 and slope direction.

ENTEROpen with 1% risk, SL at 1.6×ATR, TP at 2.8×ATR.

MANAGEHold until SL/TP; daily entry counter caps activity at 10 trades, resets next day.

Full Parameter Set

Parameter	Value	Meaning
Kagi Reversal	0.5 × ATR(14)	Minimum reverse move to flip the Kagi line
ATR Period	14	Volatility unit for the reversal threshold and stops
Clarity Lookback	20 bars	Window for the linear-regression fit
Clarity Threshold	R² ≥ 0.35	Minimum goodness-of-fit to treat the move as directional
Stop Loss	1.6 × ATR	Initial protective stop
Take Profit	2.8 × ATR	Fixed target, RR ≈ 1.75
Risk per Trade	1%	Of account balance
Max Entries/Day	10	Hard daily cap, auto-resets
Timeframe	H1	Primary design & test timeframe
Markets	Major FX, Gold, Indices	Liquid instruments preferred

Strengths & Limitations

Strengths

Reversal threshold scales with volatility — no re-tuning needed across symbols
Regression clarity filter naturally screens out choppy, low-conviction moves
All risk parameters scale with ATR — portable across instruments
Simple two-condition logic is easy to audit and journal

Limitations

Kagi flips lag the actual turning point by the reversal amount
Regression clarity can stay low for extended periods in ranging markets — fewer signals then
Thresholds (0.5 ATR reversal, 0.35 R²) may need tuning per symbol/timeframe
Backtest thoroughly before any live deployment

Risk Disclaimer: This material is for educational purposes only and does not constitute investment advice. Trading foreign exchange, gold, and indices carries a high level of risk and may not be suitable for all investors. Past performance is not indicative of future results. Always test on a demo account first and never risk money you cannot afford to lose.