Data Visualization

[Do Or Die 10]

Hi,

 

Technical Analysis can help only if you can identify patterns which are non-random. So the important part is identifying profitable patterns- either through graphs or through machine learning. Lets talk about discovering patterns through data visualization (using graphs).

 

To clarify: I'm using the word 'pattern' in a broad sense and not just the classic chart patterns. Trend itself is a pattern- the way you define a trend should suggest that prices has a high probability to continue in the direction of the trend; if they don't then trend does not exists. Similarly how a trend first starts, establishes and gets exhausted is all about patterns in price behavior.

 

So let's revise pros and cons of some available charts. Please help building a proper list by mentioning why you use a particular plot style. I will mention some not-so-popular plot styles tomorrow.

 

Line Chart

Pros: Filters out daily/minute ranges by plotting only close value. Some people find this helpful.

Cons: People who seek more details would go for O/H/L/C charts

Bar Chart

Pros: Plots the O/H/L/C values for each day, as well as the price ranges over a quarter or year depending on the number of bars you plot.

Cons: Single color; color are more catchy to eyes than just data points

Candle Stick Chart

Pros: The most popular- plots daily ranges in a way that it is easy to identify each bar pattern, also uses different colors for easier visualization

Cons: None really, depends on how comfortable a trader is with this plot style

 

Range Bar Chart

Pros: Plots each bar according to a preset range and hence filters out time details

Cons: Absence of relevant information- internals retracements within the bar range are chalked out.

Rules for plotting:

1. Each bar is the same height because the range is constant.
   
2. The close of a bar is always at the high or low of the bar.
   
3. The open of a bar is always one tick below or above the close of the preceding bar.
   
4. The time period covered by each bar varies.
   
5. All gaps are filled with inserted 'phantom' bars.
   

 

Equivolume Bar Chart

Pros: Plots the bar size in proportion to volumes- hence more information in the same plot

Cons: None really, depends on how comfortable a trader is with this plot style

Heikin-Ashi Chart

These are not really price charts but may come under the category of price derived indicator. Each bar is calculated with formula (below) to emphasize existence of trends

• Open = (open of previous bar+close of previous bar)/2
  
• Close = (open+high+low+close)/4
  
• High = maximum of high, open, or close (whichever is highest)
  
• Low = minimum of low, open, or close (whichever is lowest)
  

 

Renko Charts

These have predetermined range bars (bricks) similar to range bar charts.

Pros: does not have intra-bar hi/lo like range bar charts

Cons: internals retracements within the brick range are chalked out.

 

Kagi Charts

These are another form of time-independent charts. The thickness of the Kagi line changes depending on price action. The Kagi line is plotted up (or down) until prices reverse by a specified amount. These are not just price plots- can be categorized under derivatives.

Point and Figure Charts

Another price derived chart which follows the following rules:

• Use the high when another X can be drawn and then ignore the low.
  
• Use the low when another X cannot be drawn and the low triggers a 3-box reversal.
  
• Ignore both when the high does not warrant another X and the low does not trigger a 3-box reversal.
  
• Use the low when another O can be drawn and then ignore the high.
  
• Use the high when another O cannot be drawn and the high triggers a 3-box reversal.
  
• Ignore both when the low does not warrant another O and the high does not trigger a 3-box reversal.
  

Edited August 29, 2011 by Do Or Die

[Tradewinds 12]

  Do Or Die said:

Technical Analysis can help only if you can identify patterns which are non-random.

 

Yes, this is the ultimate goal. Starting out, I focused on price patterns only. I now compare the price pattern to other non-price indicators. I think it's important to compare price to some other non-price pattern.

[Tams 20]

I use time based charts (daily and minutes) as well as volume bar chart.

[xioxxio 10]

Price (OHLC) and Volume. Volume and price are colour coded.

[Do Or Die 10]

Please give your reasons why you prefer certain type of graphs.

 

Market Profile Charts:

These supposedly give better visuals for PV analysis by plotting volume along with price levels.

 

Each of attached charts are different, click to enlarge.

[Do Or Die 10]

Market Overview Charts:

 

These can be very helpful for stock traders.

 

Heatmaps are the simplest and can be drawn easily in Excel 2007.

Treemaps are a improved version of heatmaps where components are weighted as per their importance.

Relative Performance charts are my favorite.

Even more customization can be used for technical information.

[Logic 10]

  Tams said:

I use time based charts (daily and minutes) as well as volume bar chart.

 

Tams, email me when you get a chance please. Thanks.

[Do Or Die 10]

Similar to time independent charts like Range Bars, Kagi, Renko and PnF charts; Wilder (the author of RSI indicator) developed Accumulation Swing Index (ASI). People may find it a slight improvement over line charts. The methodology for ASI:

 

SI(i) = 50*(CLOSE(i-1) - CLOSE(i) + 0.5*(CLOSE(i-1) - OPEN(i-1)) + 0.25*(CLOSE(i) - OPEN(i)) / R)*(K / T)

 

ASI(i) = SI(i-1) + SI(i)

 

Where:

SI (i) — current value of Swing Index technical indicator;

SI (i - 1) — stands for the value of Swing Index on the previous bar;

CLOSE (i) — current close price;

CLOSE (i - 1) — previous close price;

OPEN (i) — current open price;

OPEN (i - 1) — previous open price;

R — the parameter we get from a complicated formula based on the ratio between current close price and previous maximum and minimum;

K — the greatest of two values: (HIGH (i - 1) - CLOSE (i)) and (LOW (i - 1) - CLOSE (i));

T — the maximum price changing during trade session;

ASI (i) — the current value of Accumulation Swing Index.