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charcoalstick

Reading the Price Action by Looking at Each Trade

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Everything other than this is in some sense a summary of the underlying statistic (trade by trade information).

 

So, just as an ma or more complex indicator summarizes price bar information, price bars summarize trade by trade inputs.

 

The question cs, is what speed are you going to trade at (slower suggests more summarization is acceptable) and are you capable of getting more out it by letting your brain summarize the trades rather than letting software do it by creating bar/candlestick/xxx charts?

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Everything other than this is in some sense a summary of the underlying statistic (trade by trade information).

 

So, just as an ma or more complex indicator summarizes price bar information, price bars summarize trade by trade inputs.

 

The question cs, is what speed are you going to trade at (slower suggests more summarization is acceptable) and are you capable of getting more out it by letting your brain summarize the trades rather than letting software do it by creating bar/candlestick/xxx charts?

 

u phrase the stuff i m trying to say in a really better way..

 

that is the disadvantage using candlestick or indicator based on formula/software to "summarise the trades" as you describe it...some info could be lost along the way or biased in certain way...

 

the best is to just use the RAW data trade by trade..but the problem is werther your brain is capable of doing that.

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that is the disadvantage using candlestick or indicator based on formula/software to "summarise the trades" as you describe it...some info could be lost along the way or biased in certain way...

At times, I'm most interested in (selectively) losing information :). If I am able to make effective trading decisions off a 5-minute chart, then the additional information would only cause information overload.

 

In a bigger picture, if you were position trading and planned to hold for months, how much information is gained from the tick data? How does the fact that someone went long 5 contracts affect your position?

 

Check out Blink by Malcolm Gladwell. It's not a trading book, but speaks volumes about selective ignorance and information overload.

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Instead of candlestick, would it be better to read the price action by looking at the demand and supply trade by trade, that is just following each executed trade?

 

You could plot this on a chart.

Call it a Charcoalstick chart.

You could write a book.

We could start a sub-forum on Charcoalstick charts.

Great possibilities...

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Check out Blink by Malcolm Gladwell. It's not a trading book, but speaks volumes about selective ignorance and information overload.

 

Thanks for this, I had a look at a description of the book at this site, looks really interesting!

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You could plot this on a chart.

Call it a Charcoalstick chart.

You could write a book.

We could start a sub-forum on Charcoalstick charts.

Great possibilities...

 

 

You know one of my plans was to invent a new way to visualise (chart) market data. Bars,candles,point and figure, MP, equivolume, Helkinaskis, Ichicoopark (not sure about the spelling on the last two). There must be room for another.

 

Some sort of 3d effect would be good with modern computing power. Trouble is my imagination is not what it used to be :)

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Trouble is my imagination is not what it used to be :)

I've put much thought into doing this as well, but I realized that no matter how you display the data, you're never going to find "new" data from it. The closest exception to this I can think of is Market Profile, as it changes how volume is displayed over both axis.

 

Outside of that, you have two main pieces of data: price and volume. You can distort, contort, and retort them however you want, but that's all we really have. For example, range bars "simplify" price action and enable us to identify breakouts and trends easier; however, the exact same information is just as available from a normal time chart (the high's and low's are the same, as is the general price action). Volume charts give us a good indication of price over volume; however, all that is changed is relative timeframe (as close price action is occasionally "closer" or "further" out due to volume), and the data is the same.

 

Visually, some charts may help you identify what you're looking for, but you're looking at the same side of the same coin. Almost anything you deduce from range bar, volume, tick, time, PnF, etc charts could be deduced from another (given no data smoothing or loss).

 

Market Profile (and any other chart with Volume at Price), as I mentioned, is different because it opens the y-axis for the display of volume. This is novel, because it allows us to visualize volume in a new way. In my opinion, you'd need an innovation like this to significantly improve a chart.

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Well, this Blink book has done something to my imagination ... I really like his message, which I think is nicely summarised as "the power of the trained mind to make split second decisions" (from the Wikipedia page).

 

This is what short time-frame traders (day-traders and scalpers) are doing all the time.

 

One of the criticisms of Gladwells book (again, taking this from the Wikipedia page, link above), is from Steve Sailer:

"But as far as I can tell, his book reduces to two messages:

* Go with your gut reactions, but only when they are right."

 

There is another point Sailer makes but its not relevant here.

 

But that first criticism ... does this remind anyone of trading and how we get out of decisions that are 'not right'?

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One of the criticisms of Gladwells book (again, taking this from the Wikipedia page, link above), is from Steve Sailer:

"But as far as I can tell, his book reduces to two messages:

* Go with your gut reactions, but only when they are right."

 

But that first criticism ... does this remind anyone of trading and how we get out of decisions that are 'not right'?

Perfectly valid gripe about the book. However, I'm not sure he would tell a trader to ever go with their gut. Since we're dealing with patterns, we can very easily be duped by our brians into seeing what we want to see.

 

I wouldn't parallel the book directly to trading, but use it as a constant lesson that "less is more". I'm not sure the exact primise is applicable to trading.

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I've put much thought into doing this as well, but I realized that no matter how you display the data, you're never going to find "new" data from it. The closest exception to this I can think of is Market Profile, as it changes how volume is displayed over both axis..

 

I've started working on writing up a boxplot in Ninja, i'm actually kind of suprised we don't have boxplots in software already.

boxplot.gif

 

To me its not an issue of finding new data, of course your not going to find something that is not there. To me the issue is what is the best respresentation of the data that is not either ignoring some of the data or weighting some of the data more than others giving a distortion to the data. If you take traditional candles for instance, there is somewhat of an arbitrary overweighting to the candle body depending on what time frame you decide on.

 

To me the order book is the big thing in the equation that we are missing, looking at the raw order book and just calling it nosie to me is a lack of imagination as far as a descriptive summary goes...although I can't really think of anything usefull in this area either.

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To me the issue is what is the best respresentation of the data that is not either ignoring some of the data or weighting some of the data more than others giving a distortion to the data. If you take traditional candles for instance, there is somewhat of an arbitrary overweighting to the candle body depending on what time frame you decide on.

 

To me the order book is the big thing in the equation that we are missing, looking at the raw order book and just calling it nosie to me is a lack of imagination as far as a descriptive summary goes...although I can't really think of anything usefull in this area either.

You're absolutely right; I didn't think of that. I'd love to assist with development if you want (or even just testing). I use Ninja as well.

 

I like that POC candlestick idea, and I have a few others to add to it. Let me think about this, and I think we can come up with some innovative ideas.

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Actually for me it is to help visualise what is important. For example a reason I will sometimes use candles on a very low time frame chart is to better see price rejection (by virtue of the wicks). It is not seeing more or less data it is to better notice what is important.

 

This on the ES as we speak might help illustrate, see the wicks at the top?

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For example a reason I will sometimes use candles on a very low time frame chart is to better see price rejection (by virtue of the wicks).
The flaw with candlesticks is that they weigh the open and close, when intraday, the bar open/close means very little specifically. What I mean by that is depending on what time / timeframe is governing the candles, you could end up with different stories regarding price.

 

I could create an artificial example, but I'm sure you know what I'm saying. If in your tick chart you had 10 extra ticks in the beginning, those wicks could easily be closes. Furthermore, bodies you see could be wicks depending on when the bar closed.

 

I'd love to see a way to display data that gives weight to total value for that bar (if it's far away from a wick, you know price was rejected, verses happening to close down and exposing a wick) in a friendly manner. With this said, I think there is some value in candles (and the ability to ignore wicks) for daily and larger timeframes, as it represents a market open to close.

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The flaw with candlesticks is that they weigh the open and close, when intraday, the bar open/close means very little specifically. What I mean by that is depending on what time / timeframe is governing the candles, you could end up with different stories regarding price.

 

I could create an artificial example, but I'm sure you know what I'm saying. If in your tick chart you had 10 extra ticks in the beginning, those wicks could easily be closes. Furthermore, bodies you see could be wicks depending on when the bar closed.

 

I'd love to see a way to display data that gives weight to total value for that bar (if it's far away from a wick, you know price was rejected, verses happening to close down and exposing a wick) in a friendly manner. With this said, I think there is some value in candles (and the ability to ignore wicks) for daily and larger timeframes, as it represents a market open to close.

 

The thing is it dosen't matter where you start with 'fast' tick charts you are not really looking at candle patterns per se you are just using it as a way of getting into the 'flow' of things. As you get flurries of activity at S/R levels you can see 'walls' form and break. Its a fairly intuitive thing. If price hits the wall and falls back it leaves wicks (several). I use it more like a proxy for the tape than as a regular chart. On the whole I use bars it's just this visualisation helps to see price rejection.

 

Maybe a brick display (like the old pong games) with the order book changes filling up new bricks and trades at the ask knocking them out would do the job?you could even have price like the ball bouncing between S/R on the micro scale. That's interesting.

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Gotcha, I fully understand what you're saying. I use the same technique for entries / exits often. Something you hit on one of your charts is using volume on a tick chart, which in effect, shows order size for the tick bar.

 

I highlighted in your attachment significant volume bars that peak above the rest for the benefit of everyone else. Notice what happens to price action after a volume peak. Almost every micro-wave was identified extremely close to the high/low (within 1-2 bars and 1-2 ticks on the chart).

attachment.php?attachmentid=7187&stc=1&d=1214491237

 

I've used this for entries / exits for a while, and I think it's a very valuable tool on the micro scale (I wouldn't trade based only on these, but they help get a good price). Any ideas how we could integrate this into a standard time chart?

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While we are on a role, here was something I played with a while ago (can't find the thread but it was one of the ones dealing with market delta).

 

It is a 1 tick wide constant range bar with delta plotted at the bottom. The idea was that the 1 tick wide represents a bid ask pair and the delta would display the action for that level. I did not presue it but I have just put together another chart. Whilst the delta stuff didn't pan out (volume seems to work equally well) it seems to show how price moves at a 'wall' well.

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Yeah, this is probably doing the same thing. Basically, we've identified that volume acts in certain ways at micro-tops and micro-bottoms in relation to the number of orders. On the last chart I annotated, a short/long entry could easily be improved by a few ticks if you pay attention to this. I'm not sure if Delta has any advantages, because it doesn't nessessarily tell you anything else (though it may help with a direction bias).

 

What if we were able to identify these "wall points" on a time chart with a symbol on the bar, like an asterisk? In addition to POC, this could give us a very good idea of value and market flow. Thoughts?

 

(As a note, something I want to stay away from is busying up a chart, without adding much additional value.)

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You guys are coming perilously close to discovering the true nature of price movement as well as that of support and resistance. You're seeing the "message" of what most everybody else sees as "noise".

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You're absolutely right; I didn't think of that. I'd love to assist with development if you want (or even just testing). I use Ninja as well.

 

That would be cool, I think I've put things on hold though until the next version of Ninja when they said it will have support for historic fills for delta/bid/ask stuff.

Have you done much with overriding plot in ninja? I was starting to make some progress, then my computer crashed and I haven't gotten at my old drive yet.

What I really want to do is have something like Market Delta's delta bars but seperate the bid/ask into 2 columns. You can set market delta to only plot at X ammount of transactions at one side of the bid/ask. Its especially nice for trading breakouts because if the market is stuck, bars don't get plotted until the breakout occurs. Here is a mock up I did a few months ago, and another one with a 3d order book thing but I don't know if that would really be usefull.

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Maybe a brick display (like the old pong games) with the order book changes filling up new bricks and trades at the ask knocking them out would do the job?you could even have price like the ball bouncing between S/R on the micro scale. That's interesting.

 

Haha, thats great. Can you describe this a little more? I think you mean the game "Breakout"? How ironic the game is called "breakout". :)

breakout.jpg

 

Also, Intrabar POC/PVP is really nice to have. Market delta already does this by putting a line at what price had the most activity at in each bar. Its really nice to see in a trend, especially for the market profile concept of higher/lower prices atracting activity.

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